Setting Expectations for 2018 Semiconductor Revenue Growth
Starting the second half of 2018 there are various trends and data points that can be analyzed to get a sense of where growth is headed for the semiconductor industry in the second half of 2018 and for the full year results. Following a strong year of 22 percent growth in 2017 the current analysis points to a semiconductor cycle that will moderate growth but still deliver double digit growth toping 12% for the full year of 2018. Memory ICs continue to dominate growth in the semiconductor industry, but the rest of the semiconductor market should also deliver a solid performance.
The Current Cycle Peaked During the First Two Months of 2018
Data published by World Semiconductor Trade Statistics (WSTS) indicates the annualized semiconductor industry growth peaked at 22.4% in January 2018. In the following month of February, the quarter-over-quarter growth in semiconductor revenues dipped below the annualized growth for the first time since the start of the current semiconductor market growth cycle. Historically, this has been a reliable indicator that the market is entering the downside of the growth cycle. The good news is that through April 2018 the market had only dropped slightly from its January peak which points to a “soft landing” for the semiconductor market.
Figure 1 – Semiconductor Market Revenue Growth
Encouraging Component Lead Times
The Electronic Components Industry Association (ECIA) data on average component lead time shows demand still solidly leading supply. Lead times for semiconductor components have been extending consistently since the second half of 2016 and have topped 12 weeks in the first four months of 2018. April 2018 showed a modest dip in lead times which would be consistent with a weakening semiconductor cycle. However, the modest dip also points to a solid year for 2018. Passive and Electromechanical components have all seen increases in lead times starting in 2016. It would be expected that these markets would follow the lead of the semiconductor component cycle and see reduced lead times moving into the second half of 2018.
Within the semiconductor industry specifically it is interesting to note the dramatic increase in lead times for discrete components reaching all the way to an average of approximately 20 weeks. Memory and Logic ICs saw a small jump in lead times in April consistent with their role in leading growth overall in semiconductors. Processors and controllers have maintained a balanced lead time profile in recent months. Linear (Analog) ICs have shown strong demand pushing out lead times up until April. With only a couple of exceptions the supply / demand picture for semiconductors appears strong across the board.
Figure 2 – Average Component Lead Times
Figure 3 – Average Semiconductor Component Lead Times
In June 2018, WSTS published its forecast for semiconductor growth for 2018 and 2019. In its press release it projected growth of 12.4 percent for 2018 with revenues reaching $463 billion. It noted expectations for continued extraordinary growth from Memory ICs at 26.5 percent followed by Analog ICs with 9.5 percent growth. It expects growth to dip to 4.4 percent in 2019 to total $484 billion for the year. With revenues of $148.7 billion for the first four months of 2018 the industry saw year-over-year revenue growth of 20.7 percent for this time-period. Hence, the WSTS forecast implies an expectation of 8.7 percent growth for the remaining eight months of 2018.
The 2018 average semiconductor revenue growth forecast from a variety of market research firms aligns with the WSTS outlook. The average of forecasts published since April points to 12.8 percent growth while the most recent published forecasts from all market research companies averages at 12.2 percent.