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Roiled by industry dislocations and trade tensions between the world’s two largest economies, global design spend on semiconductors in 2019 suffered the worst decline in a decade, sending expenditures governing chip and electronics system design to a new two-year low, according to the latest findings in the Omdia report, Design Activity Tool – World + Regions – H2 2019.  

Semiconductor design spend by the world’s top OEMs plunged 10.1% in 2019 to $300.4bn, a stark and substantial contrast to the robust 9.9% growth in spending that occurred in 2018. The dramatic decline puts total chip design spending in 2019 below the 2017 level of $304bn, as shown in the graphic below.  

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The Design Activity Tool by Omdia analyzes design spend, a measurement of OEM semiconductor spending, as influenced by the intensity of different R&D activities at distinct locations. The tool includes the R&D Center Database, which contains detailed analysis of more than 5,000 global R&D locations from nearly 250 of the world’s leading electronic OEMs, each reporting annual revenue of at least $1 billion.   

The depressed spending last year can be attributed to a multitude of issues, including a sharp drop in the price of memory integrated circuits, excess inventory in the supply chain, a worldwide slowdown in industrial production, and intense turmoil caused by tit-for-tat trade sanctions exchanged between the US and China. All of these factors have curtailed revenue growth and semiconductor spending among the top electronics OEMs. 

While a rebound had been expected this year as new 5G devices recharge spending and as trade issues are resolved, the coronavirus global pandemic will likely thwart the likelihood of returning to healthy chip design spending, given the anticipated fall to occur in consumer spending and the massive disruption projected to sweep through the global electronics supply chain.  

Weakness throughout 

Among design spend categories, wireless chip design took a spectacular hit, diving $16.4bn—nearly half of the total decline in design spending. The stunning retreat can be explained in part by a contraction in the global smartphone market, which had peaked in 2018. Smartphones are also the second-largest consumer of memory chips, and the steep 28.5% fall in memory design spend—the largest drop in any device category—was the other reason for the acute fall in wireless chip design dollars.  

One bright spot was automotive, with its share in overall design spend rising to 10%, owing to high growth in advanced driver assistance systems (ADAS) being installed increasingly as a standard feature in vehicles everywhere. Companies like Tesla, which expanded spending on semiconductors for still-to-emerge features in its line of electric vehicles, also helped to lift the automotive sector.  

Top OEMs and their spending 

As with overall chip design spending, spending last year by the world’s top players fell compared to year-earlier levels. Overall, combined spending in semiconductor design from the top 20 OEMs in 2019 fell to $187.6bn, a significant decrease from $209.3bn in 2018. Among the top 20, only four OEMs—Alphabet, Amazon, Japanese maker Denso, and Xiaomi from China—posted positive spending growth.  

Meanwhile, the five Chinese OEMs that made it into the magic circle of 20—Lenovo, Huawei, Xiaomi, Oppo, and Vivo—jointly spent approximately $56.6 billion in 2019, down 4.2% from 2018. But despite the sluggish smartphone and PC markets in which the Chinese participate or own, their combined spending share expanded from 17.7% in 2018 to 18.8% in 2019, lifted by lower spending as a result of spending share loss by Japanese and Korean OEMs. 

Apple remained the leader in design spending in 2019, despite slower iPhone sales. In second place was Samsung Electronics, followed by Huawei Technologies, Lenovo, and Dell.  

Among regions, Asia Pacific claimed the largest share, accounting for nearly 45% of total chip design spend in 2019. The Americas market was second with nearly one-third share, followed by the Europe-Middle East-Africa agglomeration known as EMEA, and then by Japan, considered its own region, in fourth place.  

The Design Activity Tool – H2 2019 report is offered under Omdia’s Components & Devices research pillar. Omdia subscribers also have access to our overall Semiconductors research service, covering Semiconductor Components, Semiconductor Manufacturing, and the Semiconductor Market