Semiconductor slump could send shockwaves across global electronics industry

·         The global semiconductor industry is set to post its deepest decline in annual sales (-15%) since the dot-com bubble burst in 2001, with industry revenue to drop by USD70 billion

·         Weakened demand, overcapacity and unfavorable pricing environment will send the sales contraction well into 2020 with another -3% decline

·         A second consecutive year of falling revenue and an uncertain business environment will put five kinds of electronics companies at risk in the U.S., China and South Korea

Hong Kong, 6 November 2019 – Weakened demand from key smartphone and computer markets and unfavorable pricing environment will drive the global semiconductor industry towards its steepest decline in annual sales (-15%) since the dot-com bubble burst in 2001, Euler Hermes’ latest sector research report reveals.

While annual semiconductor sales rose by +21.6% and +13.7% in 2017 and 2018 respectively, this year’s steep sales decline could wipe out USD70 billion in revenue. Euler Hermes expects the slump to continue into 2020, with a further sales contraction of -3%.

Apart from weakened demand, semiconductor companies have found themselves with excess inventories and production overcapacities, which has led to fierce price competition. With China-U.S. trade tensions added to the mix, the semiconductor industry saw its monthly sales sharply drop by -30% between September 2018 and January 2019 alone.

“Soft demand will maintain inventories at high levels while persisting trade tensions will further weigh on business confidence, leaving little room for a significant and general improvement in the pricing environment. Even though smartphones have blossomed into the number one client for semiconductor companies between 2007 and 2018, we do not expect 5G take-up to be enough to accelerate smartphone replacement cycles under the current weather,” said Aurélien Duthoit, Sector Advisor for Retail, Technology and Household Equipment at Euler Hermes.

Overall, the global semiconductor industry should still display healthy profit margins, positive cash generation and low financial leverage. However, the sales slump will significantly increase risks for several types of companies in the wider electronics industry, including South Korean chipmakers, Chinese electronics assemblers and U.S. electronics retailers.

Full report can be downloaded here.
Economist for Latin America, Spain and Portugal
Senior Economist for Emerging Europe and the Middle East