As the COVID-19 pandemic continues to accelerate and cause damage to the global economy and consumers’ purchasing power, TrendForce has compiled its latest report on the statuses of key electronics component and downstream industries, with data last updated on March 26, 2020.
Most clients of the global IC design companies placed orders ahead of time, with some of the orders having been fulfilled and shipped already. As such, IC design revenue is not expected to decrease by a considerable amount in 1Q20 despite being somewhat affected by the pandemic. The expanding pandemic has, however, lowered device manufacturers’ demand for IC design. IC designers for smartphones and other consumer electronics have felt the greatest impact. These companies will potentially see the diminished demand reflected in their 2Q20 revenues. As well, the U.S. government has not changed its stance on the entity list policy. Against the twin hindrances of the pandemic and the entity list, the IC design industry is unlikely to return to a state of growth in 2020.
Wafer suppliers such as foundries and IDMs are able to maintain their manufacturing operations due to their high degree of industrial automation. In addition, their major expansion plans are projected to take place after making some strategic adjustments. But as the pandemic persists, regions such as Taiwan, South Korea, Europe, the U.S., and Japan are attempting to curb the spread by restricting border entry or adopting telework arrangements. These efforts, along with the health of the European, American, and Japanese supply chains of key equipment and raw materials, will be factors determining foundry operations in the future.
With regards to the demand side, foundries are able to maintain their capacity utilization rate by fulfilling orders from 4Q19 and by their clients’ restocking demands. In contrast with the IC design or OSAT industries, the foundry industry’s revenue in 1Q20 has felt less impact from the pandemic. But the rapid global spread of the pandemic is projected to affect not only the global economy, but also personal and corporate purchasing power, to be potentially reflected in foundry revenue performances from 2Q20 onwards.
The packaging and testing, or outsourced semiconductor assembly and test (OSAT), industry previously suffered major declines due to the China-U.S. trade war; the pandemic’s current effect on the industry thus appears relatively minor in comparison. TrendForce expects OSAT revenue in 1Q20 to trend either flat or upwards YoY, while the industry’s performance in 2Q20 and later will depend on client demand.
Despite the apparent slowdown of the pandemic in China, the virus is now rapidly multiplying across major economies, which poses dire, system-wide risks for the global economy. The memory market may take a turn for the worse and go into a slump earlier than expected. Regarding market demand, the pandemic’s rapid proliferation will severely diminish consumer purchasing power. Smartphone production in particular will undergo the greatest magnitude of cutbacks, since smartphones account for the greatest share of consumer purchases compared to other memory products. Waning purchasing power will lead to lowered demand for electronic products and subsequently impact the demand for upstream memory products.
Given the 13% and 32% YoY growth in DRAM and NAND Flash bit supply for 2020, in addition to the mostly low inventory levels maintained by DRAM and NAND Flash clients in early-2020, TrendForce initially forecasted a probable constant growth for DRAM and NAND Flash prices up to the end of the year. Nevertheless, as structural changes occur in the supply and demand of memory products, DRAM and NAND Flash clients will exhibit weakened purchasing demand, reflecting a similar weakened demand in the end-product markets. There is now a greater likelihood in 2020 for memory product ASP to increase to a lesser degree than previously expected or even undergo a price drop, especially for NAND Flash, since the shortage of NAND Flash memory was not a significant amount.
In terms of the COVID-19 pandemic’s effect on the production of large-size panels, the pandemic has hurt back-end module shipment far more than it did to that of highly-automated front-end manufacturing. With regards to the February shipment performance of TV panels, which are generally shipped in open cell format, the gap between the actual and forecasted shipments was only 9.8%. In comparison, monitor and notebook computer panels were usually shipped out in module formats. Also in February, the gaps between actual and forecasted shipments for monitors and notebook panels were as much as 25.5% and 29.9%, respectively. Thus, the COVID-19 pandemic has diminished the shipment of IT panels far more than it did to that of TV panels. As the pandemic has seemingly slowed down in China, panel supply has seen a gradual ramp-up. Actual panel supply is projected to reach above 85% of previously planned levels in March and exceed 90% in April.
In terms of yearly shipment, as TV panel prices steadily rebound, manufacturers will become more and more willing to produce TV panels in 2020. However, Korean panel manufacturers are continuing to reduce their production capacities. Thus, TV panel shipment in 2020 is expected to decline by 4% YoY. As IT panel supply gradually recovers, the industry’s supply chain (including OEMs) in 2Q20 and 3Q20 is expected to aggressively make up for the shipment gap caused by the COVID-19 pandemic in 1Q20. In 2020, monitor panel shipment and notebook panel shipment are each projected to grow by 3.4% and 0.4% YoY, respectively.
In terms of optical fibers and fiber-optic cables, over 50% of the global R&D and supply is located in Wuhan, China. Products related to optical fibers include optical communication components, optical transceivers, and 5G components. Given that most key component suppliers of 5G base stations are located in Hubei (whose capital is Wuhan), the pandemic’s impact on the optical communications industry is likely to have serious repercussions for the development of 5G infrastructure and the rollout of 5G services in 1H20.
The construction of 5G base stations places a high demand on the quality and quantity of fiber-optic cables. For instance, the deployment of UDN, or ultra-dense networks, has galvanized a corresponding demand on fiber-optic cables. The 5G transition requires more than double the total of fiber-optic cables used in today’s 4G infrastructure. Aside from the sheer quantity of fiber-optic cables required, the transition will also bring about other changes, such as increased bandwidth demand, adoption of flat networks, and network connections between data centers. All of the aforementioned changes will challenge the resilience of the internet backbone.
Communications companies such as Fiberhome, YOFC, and HTGD are making a proactive effort at work resumption and manufacturing resumption. However, transportation and logistics remain key aspects of optical communications equipment production. With many interprovincial and intercity roads still blocked and international flights canceled, the industry is seeing greatly reduced logistical capacity and therefore shipment. Should the pandemic manifest uncontained in 2Q20, it will greatly hinder the infrastructure build-out of global 5G networks and data centers. On the other hand, given the pandemic’s influence on the global economy, which in turn sees weakened consumer confidence and demand for end-devices, deferred 5G infrastructure construction and constricted smartphone replacement demand will lead to a slowdown in 5G smartphone sales in 2020.
The COVID-19 pandemic damaged the TV industry starting from the Chinese market. China began to put cities under lockdown, disallowed some stores to open, postponed work resumption schedules, and limited transportation by land, air, and water from February. These measurements reduced TV set demand in China, and indirectly caused labor and material shortages in the TV supply chain in China. Although the pandemic has seen signs of gradual containment in China in March, its spread is accelerating in Europe and the U.S. Outside of China, more cities or countries are steadily put under lockdown. In addition, the stock market crash in many countries have taken a heavy toll on the financial markets while impairing consumer confidence.
The TV industry currently faces pressure on both the production side and demand side. TrendForce has reduced its projection of global TV shipment for 1Q20 to 44.6 million units, down by 8.6% from the pre-COVID-19 prediction of 48.8 million units. A similar drop is expected in 2Q20, from the pre-pandemic forecast of 47.6 million units to 44.1 million units, a 7.3% decrease.
Moreover, both UEFA EURO 2020 and 2020 Tokyo Olympic Games have been postponed to 2021, in turn further weakening the demand for TVs. TrendForce has therefore lowered 2020 TV shipment forecast to 205.2 million units, a 5.8% decrease YoY. This figure is also 6.7% lower than TrendForce’s pre-pandemic forecast. With the possibility of the pandemic escalating in North America and emerging Asian regions, TrendForce may decrease the TV shipment forecast even further in the future.
Due to the pandemic, the top six notebook OEMs, most of which are based in China, suffered damages to their production capacity in February. Hence, TrendForce has decreased its projected 1Q20 notebook shipment from the pre-pandemic level of 35 million units to 27.9 million units, down by 20.3%. After China saw a stabilization in the spread of the pandemic, OEMs aggressively pursued labor and materials, while ramping up their capacity utilization rate to 70% within one month. Meanwhile, upstream material manufacturers are expected to return to normal supply levels before May.
Although demand stemming from educational-use ChromeBook bids and work-from-home commercial notebooks surfaced in late-March, the pandemic began to accelerate in March in Europe and the U.S., markets accounting for more than 50% of notebook sales. The pandemic's blow to consumer confidence is unlikely to be erased in the short-term. Not only is demand sluggish in the short term, the weakened willingness to purchase may persist well into the Thanksgiving and Christmas holidays in 2H20. Considering the uncertainty of future demand, TrendForce has reduced its 2020 notebook shipment forecast from pre-pandemic levels of 162.4 million units to 156.7 million units, down by 3.5%.
With the global economy being battered by the coronavirus pandemic, the overall demand for consumer electronics is expected to decline sharply as well. Currently, the impact of the pandemic on the smartphone market is mainly on the demand side. Consumers worldwide will most likely defer purchasing new smartphones this year, thereby lengthening the device replacement cycle and pushing down the overall ASP. Furthermore, rising costs across the supply chain (such as labor cost, cost in connection to a change in the exchange rate, etc.) will weaken the profitability of smartphone brands. Dramatic shifts in performances among brands could also lead to a reshuffling of the industry in terms of market share. Considering that the scale of the pandemic continues to grow, the forecast of this year’s smartphone production has again been revised. The total worldwide smartphone production volume in 2020 is now projected to reach 1.29 billion units, a drop of 7.8% from 2019. The downward correction is attributed to the recession that follows the pandemic as well as the downgrade in shipments (sell-ins) in Europe and North America, which are now the most hard-hit regions of the world.
The current financial crisis that accompanies the pandemic has produced a lot of uncertainties and could surpass the Financial Crisis of 2007-2008 in scale. Hence, the general economic outlook for 2H20 could become even gloomier as the pandemic is not expected to be brought under control in the short term. TrendForce is not discounting the possibility of further contractions in smartphone demand.