The global pandemic has taken its toll on some industries while buoying others to new levels of success. According to a new report from Wakefield Research, the global semiconductor industry may be one of the luckier sectors when all is said is done. In fact, the research firm predicts that industry will emerge from the COVID-19 outbreak even stronger than it was before.
“The initial work stoppages at Asian semiconductor manufacturing plants and their suppliers—combined with international travel restrictions—caused some supply shortages,” it points out in the report, “but the industry has been able to weather the early storm.”
Playing a Critical Role
Reflecting back to March, Wakefield Research says key semiconductor manufacturers (U.S.-based Micron, for instance) were using stockpiled raw materials to supplement COVID-impacted supply chains. “With production now resumed across most of Asia, and supply starting to pick back up, much of the early fears regarding supply chain shortages have not been realized,” it points out.
Meanwhile, across the U.S. and much of the western world, semiconductor manufacturers have been classified as “essential businesses” and remained open, Wakefield Research adds, “due to the critical role that semiconductors play in electronic equipment and network infrastructure.”
Despite these ongoing operations, the company says the early supply chain interruptions and subsequent schedule adjustments will combine to lower 2020 semiconductor production levels compared with the past.
The Remote Work Movement
In assessing the current state of the industry, Wakefield Research expects the shock of the pandemic to result in lower worldwide revenue for the broader semiconductor industry (by 5% to 20%) in 2020. Demand for semiconductors will vary by application. For example, the current environment has diminished consumer spending, it says. This is expected to cause a delay in consumers upgrading their phones in 2020—leading to a drop in demand for semiconductors used in these applications.
“However, looking further ahead, the greater prevalence of remote working and rising share of ecommerce should drive increases in bandwidth and processing requirements, which will support some semiconductor providers,” Wakefield Research predicts.
It adds that demand for industrial semiconductors used in medical devices such as X-ray machines, ventilators and diagnostic equipment is rising rapidly as many companies have transitioned to medical device manufacturing. Increased artificial intelligence capabilities, driven by the need for population monitoring, will also be a tailwind.
“Even before the COVID-19 outbreak, an oversupply of semiconductors was expected to slow industry growth to 2% in 2020,” the research firm explains. “Historically, the semiconductor market has recovered quickly from past demand shocks.”
As economic activity recovers, the company is forecasting demand for semiconductors to recover quickly as companies begin to renew their investments in cloud infrastructure, and as artificial intelligence (AI) and connected devices become increasingly commonplace in society.
A Broader Trend that May Endure
Wakefield Research isn’t alone in its positive predictions about the world’s semiconductor industry. Speaking with CNBC, Gina Sanchez, CEO of Chantico Global, said the COVID crisis has shined a spotlight on the importance of technology, a trend she sees continuing.
“The trend towards remote working, the revamping and revisiting of business continuity plans, the push towards 5G, all of that has played into the hands of semis stocks,” Sanchez said during the same “Trading Nation” segment. “The continued reliance on technology also helps.”
The SMH ETF is up more than 30% over the past three months. Nvidia, ON Semiconductor and Marvell Technology are among the top performers.
“These trends, by the way, aren’t going to end with COVID,” Sanchez added. “So, I think that this is a broader trend that can last a long time.”