The global pure play foundry market will maintain a decent first quarter despite the wreckage now being caused by the coronavirus on the industrial landscape, but how the second quarter and the rest of the year will perform is very much up for grabs and will depend on whether the virus is contained, new guidance from Omdia shows.
Because foundries never engage in any sort of speculative manufacturing, the first quarter will finish with respectable results given that foundries will have been manufacturing goods on orders that had already been booked and processed. The satisfactory results from the first quarter follow a stronger-than-historical fourth quarter, up 6.5% from the third quarter and up 3.7% from the same period a year ago.
5G as a key mitigating issue
How the remaining quarters this year and the year in general turn out for the global foundry market will depend largely on the success of quarantine efforts throughout the world in containing the coronavirus disease, also known as COVID-19.
But whether virus-containment efforts are successful or not, the shock to the foundry system will be eased by the deployment in earnest this year of a significant technology.
That technology is the next-generation mobile standard of 5G, which manufacturers are now starting to incorporate into wireless handsets. Mobile handsets are a critical part of foundry demand, and harnessing 5G power will require the production of new semiconductors and other electronic components for handsets. Assembly and testing will also be required before the handsets are released to the markets, forming another layer of production activity that will help generate revenue and blunt loss for the foundry industry.
For now, foundries such as Taiwan’s TSMC, the world’s largest foundry, along with US chipmaker Qualcomm and South Korea’s Samsung, are all maintaining a positive outlook, asserting 5G demand to be strong; none have changed their forecasts.
Scenarios: best-case vs. worst-case
But with the supply chain currently in full disarray and market demand uncertain, the foundry forecasts made at the beginning of the year before the appearance of the virus no longer apply.
In the best-case scenario, the second quarter contracts by 12.3% from the $14.8 billion in total industry foundry revenue posted during the first quarter. But because virus-containment efforts are successful, the third quarter rebounds strongly, up a projected 9.4% from the second quarter, and then enjoys another 3.0% expansion in the final quarter. In this scenario, the year finishes with $56.6bn in revenue, up 5.8% from 2019.
In the worst-case scenario, the global foundry market still manages to eke out growth—but just barely. The worst-case scenario assumes that containment efforts have not been able to stop the virus on its tracks, plunging the world into recession. Consumer spending shifts from discretionary items such as electronics, to items essential to life, including food and shelter.
In the worst-case scenario, the second quarter is down also by 12.3% just like in the best-case scenario, but instead of experiencing a sharp recovery in the third quarter, the market ticks up a marginal 0.9%. The fourth quarter finishes slightly better, up 2.6%, as momentum begins to build for a more positive 2021. In this scenario, the year ends with total industry revenue reaching $54.3bn, up a marginal 1.6% from 2019.
The best-case and worst-case scenarios are shown in the table below.
Both scenarios, however, will enjoy an unexpected boon. As it turns out, investments that have been made by TSMC, the world’s largest foundry, in advanced chipmaking technology for 7-nanometer and 5-nanometer lithography will provide foundries a path to return to revenue growth in 2021. This silver lining, along with a fortuitous chain of factors such as decent first-quarter results and just-in-time demand for 5G mobile handsets, will help the foundry market stave off serious losses and avoid the grim prospects in store for other industries.
This Market Insight is offered under Omdia’s Components & Devices research pillar. Omdia subscribers also have full access to our Pure Play Foundry Market Tracker that served as the basis for this Insight, under the Semiconductors research service and the Semiconductor Market research category.