The semiconductor industry is notoriously cyclical. As such, semiconductor companies are subject to the ups and downs of regular chip cycles tied to the law of supply and demand. When conditions are favorable, chipmakers have trouble keeping up with demand. But when supply exceeds demand — either through overproduction or a pullback in end markets — prices fall. In turn, so do chip manufacturing levels. Investor’s Business Daily divides semiconductor companies into three groups: chip manufacturers, fabless chip companies and chip-equipment makers. Chip manufacturers own their fabrication (chipmaking) plants, while fabless chip companies hire contract manufacturers to make the chips they design. Chip-equipment vendors supply the gear and materials used to produce semiconductor products.
Why Are Semiconductors So Important?
Semiconductors are important to the world because they power technologies that enrich the lives of consumers and make businesses and other enterprises run smarter, faster and more efficiently.
They provide the ingredient technologies for personal computers, tablets, smartphones and other gadgets. Semiconductors run communications networks and the internet. They are adding smarts to televisions, home appliances, automobiles and other devices.
Semiconductor chips also underpin such massive emerging trends as cloud computing, 5G wireless networks and artificial intelligence.
Is The Semiconductor Industry Growing?
Conductor industry sales turned south in late 2018, starting with memory chips. The downturn soon spread to other chip markets amid softening sales of smartphones, PCs and other products.
In 2019, the semiconductor industry suffered its worst year in almost two decades. Semiconductor revenue fell 12% to $412.1 billion, according to the Semiconductor Industry Association.
“Amid a confluence of factors, including ongoing global trade unrest and cyclicality in product pricing, worldwide sales of semiconductors were down considerably in 2019,” SIA Chief Executive John Neuffer said in a news release.
The World Semiconductor Trade Statistics organization projects annual global chip sales will increase 3.3% in 2020 and 6.2% in 2021. It issued its latest forecast on June 9.
However, the Covid-19 pandemic has slowed the expected growth in the semiconductor industry. Earlier this year, the group projected global chip sales would rise 5.9% in 2020 and 6.3% in 2021.