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Global liquid crystal display (LCD) and organic light-emitting diode (OLED) panel shipments are expected to increase by 7 percent in the second quarter of 2017 quarter to quarter to 646.7 million units, a rebound from a 9 percent quarter-to-quarter decrease in the first quarter, according to IHS Markit.

“The increase in shipments has been driven by demand from new product model preparation and the annual Labour Day sales promotion in China held during May,” said Linda Lin, senior analyst of display research at IHS Markit. “Among applications, TV, monitor and smartphone panels will drive the shipment increase.”

IT panel demand is expected to be conservative this year, without strong enough replacement momentum to drive it up. Demand for notebook PC panels is forecast to decline 8 percent in the second quarter of 2017 from the previous quarter, weaker than that for monitors (up 5 percent) and tablet PC (down 1 percent) applications. In particular, tablet PC panel demand is expected to surge at the end of the second quarter as Apple and other tablet PC brands launch new products later.TV panel inventory level is balanced at this moment, and TV panel demand is expected to go smoothly through the second quarter of 2017. “TV inventory levels after China’s Labour Day sales promotions will determine whether panel demand can continue up or decline in the second half of 2017,” Lin said.Demand for TV panels is forecast to be up 3 percent in the second quarter from the previous quarter. After suffering from high panel prices, TV brands are likely to move their procurement plan to two different size segments at either 32-inch and below, or 65-inch and above.  Smaller TV brands are aiming for the smaller segment, seen as a boon for quantity sales given the lower retail price, while first-tier brands that command better purchasing power will look to the larger segment, despite the supply shortage caused by tighter capacity, according to IHS Markit.

“Panel makers are moving more capacity to IT panels from smartphone panels beginning the second quarter as mobile phone set demand slows down. This will aggravate the supply-demand imbalance in the IT panel market,” Lin said.

The new Samsung Galaxy S8 equipped with 64 gigabytes (GB) of NAND flash memory carries a bill of materials (BOM) cost that comes out to US$301.60, much higher than for previous versions of the company’s smartphones, according to a preliminary estimate from IHS Markit (Nasdaq: INFO).

After $5.90 in basic manufacturing costs are added, Samsung’s total cost to make the Galaxy S8 rises to $307.50; the unsubsidized price for a 64GB Galaxy S8 starts at around $720. The preliminary estimated total at this point is $43.34 higher than that of the Galaxy S7 previously performed by IHS Markit, and is $36.29 higher than the total build cost of the Galaxy S7 Edge, considered a better comparison to the Galaxy S8. IHS Markit has not yet performed a teardown analysis on the larger Galaxy S8 Plus.

“The higher total BOM costs for the Galaxy S8 seem to be part of a trend that reflects something of an arms race in features among Apple, Samsung and other phone manufacturers, as they all try to add new and distinguishing hardware features,” said Andrew Rassweiler, senior director of cost benchmarking services for IHS Markit. “While there are new non-hardware features in the Galaxy S8, such as a virtual assistant called Bixby, from a teardown perspective the hardware in the Galaxy S8 and that of the forthcoming new iPhone is expected to be very similar.”

The introduction of the Galaxy S8 comes at a delicate time for the embattled South Korean electronics giant, which is eager to put behind the challenges associated with the Galaxy Note 7, whose exploding batteries prompted a worldwide recall.

The latest salvo from Samsung shows how it’s keen to regain consumer confidence and attain leadership in the smartphone landscape, a nearly saturated but still highly competitive space that remains key to retaining subscriber loyalties and winning new converts.

First smartphone capable of gigabit-LTE speeds

Both the Galaxy S8 and S8 Plus feature a 10-nanometer (nm) system-on-chip (SoC) along with CAT-16 LTE modem and radio. The CDMA version of the S8, intended for use in the United States as well as in China, will feature the Snapdragon 835 chipset from San Diego-based Qualcomm. In comparison, a version of the phone featuring Samsung’s homegrown Exynos 8895 chipset will be used for the rest of the world.

The CAT-16 LTE radio allows the new Galaxy phone to aggregate three carriers of up to 20 megahertz each. Combined with 4×4 MIMO antennas and higher-order modulation of 256 QAM, the LTE modem is capable of reaching peak theoretical speeds of one gigabit per second. “Gigabit LTE is very much the marquee specification for 2017 flagship smartphones,” said Wayne Lam, principal analyst of smartphone electronics, IHS Markit. “Keep in mind that gigabit speeds are a best-case scenario and that a user’s real-world experience will be limited to what mobile networks can provide.”

New “Infinity Display” design fits better in hand

The redesigned Galaxy S8 has a tall, narrow shape that is 1.5 millimeters narrower than the previous Galaxy S7, providing slick new ergonomics while also optimizing screen real estate. The screen curves around the edges, and Samsung designers have maximized the display, relative to the size of the phone, with a 5.8-inch 2960×1440 AMOLED display and an elongated aspect ratio of 18.5:9. Compared to conventional 16:9 aspect-ratio Quad HD smartphone displays, the Galaxy S8 features an additional 15 percent more pixels in a form factor that is easier to hold in the hand. The device’s haptic engine, which provides the “click” feel for users, also has been improved for longer-duty cycles and a more dynamic response.

Double the base-model storage

Both the Galaxy S8 and S8 Plus feature 4GB of RAM and built-in storage of 64GB—twice the standard built-in storage found in the Galaxy S7 as well as the iPhone 7. Storage for the new Samsung phones can also be expanded, up to 256GB, via a microSD card. The Samsung NAND flash memory and DRAM on the S8 come in at a cost of $41.50. Rassweiler said: “While in previous years the cost per gigabyte has generally fallen in both the NAND flash and DRAM areas, we have seen rising prices in both DRAM and NAND flash recently due to some tightness in the marketplace. The cost of memory in the S8 reflects these recent market dynamics, even though we expect the erosion in memory pricing—something that occurs regularly in the memory market—to resume during the course of the year.”

Battery

The battery capacity on the Galaxy S8, at 3000 milliamp hour (mAh), is the same as that found in last year’s Galaxy S7. However, compared to the Galaxy S7 Edge, which had a 3600mAh battery, Samsung played it safe after the Note 7 incident and included a considerably less dense battery pack. Overall cost estimate for the Galaxy S8 battery pack is $4.50.

Single camera lens

Although the Galaxy S8 and S8 Plus come with new features and the latest components, each still has only a single camera in the back—essentially the same as the camera module found in last year’s Galaxy S7. Apple’s iPhone 7 Plus, the newly launched LG G6 and many Chinese OEMs are now promoting dual cameras as a key feature. Owing to the asymmetric placement of the rear fingerprint sensor, it would have been likely that a dual-camera design was scrapped at the last minute in the design cycle.

Worldwide semiconductor revenue is forecast to total $386 billion in 2017, an increase of 12.3 percent from 2016, according to Gartner, Inc. Favorable market conditions that gained momentum in the second half of 2016, particularly for commodity memory, have accelerated and raised the outlook for the market in 2017 and 2018. However, the memory market is fickle, and additional capacity in both DRAM and NAND flash is expected to result in a correction in 2019.

“While price increases for both DRAM and NAND flash memory are raising the outlook for the overall semiconductor market, it will also put pressure on margins for system vendors of smartphones, PCs and servers,” said Jon Erensen, research director at Gartner. “Component shortages, a rising bill of materials, and the prospect of having to counter by raising average selling prices (ASPs) will create a volatile market in 2017 and 2018.”

PC DRAM pricing has doubled since the middle of 2016. A 4GB module that cost $12.50 has jumped to just under $25 today. NAND flash ASPs increased sequentially in the second half of 2016 and the first quarter of 2017. Pricing for both DRAM and NAND is expected to peak in the second quarter of 2017, but relief is not expected until later in the year as content increases in key applications, such as smartphones, have vendors scrambling for supply.

“With memory vendors expanding their margins though 2017, the temptation will be to add new capacity,” said Mr. Erensen. “We also expect to see China make a concerted effort to join the memory industry, setting the market up for a downturn in 2019.”

Unit production estimates for premium smartphones, graphics cards, video game consoles and automotive applications have improved and contributed to the stronger outlook in 2017. In addition, electronic equipment with heavy exposure to DRAM and NAND flash saw semiconductor revenue estimates increase. This includes PCs, ultramobiles, servers and solid-state drives.

“The outlook for emerging opportunities for semiconductors in the Internet of Things (IoT) and wearable electronics remains choppy with these markets still in the early stages of development and too small to have a significant impact on overall semiconductor revenue growth in 2017,” said Mr. Erensen.

As demand for the flexible AMOLED display continues to sharply increase, its revenues are expected to reach $3.2 billion in the third quarter of 2017, exceeding that of rigid AMOLED panels at $3.0 billion, according to IHS Markit (Nasdaq: INFO).

With many smartphone brands planning to apply flexible AMOLED displays to their high-end product lines, revenues for flexible AMOLED panels are expected to grow over 150 percent compared to 2016. On the other hand, rigid AMOLED panels, now mainly used for mid-range smartphones, are forecast to decline 2 percent in revenues from 2016.

“Smartphone brands believe using flexible AMOLED panels in their latest high-end products will differentiate themselves from competitors still using rigid AMOLED displays or liquid crystal displays,” said Jerry Kang, principal analyst of display research at IHS Markit.

“Samsung Electronics and LG Electronics have launched some of their flagship smartphones with flexible AMOLED displays since 2013, but have yet to become mainstream products given there was limited panel supply,” Kang said. “Since 2016, however, many more panel makers have focused their efforts on increasing their supply capacity for flexible AMOLED displays. They have also tried to optimize the manufacturing process and design better structure of these panels, making flexible AMOLED display a favored choice for smartphones makers.”

amoled shipments

According to AMOLED & Flexible Display Intelligence Service by IHS Markit, most smartphone makers are aiming to apply flexible AMOLED displays to their products in 2017, but some of them would still find it difficult due to the higher price tag.

“Currently, the cost to make flexible AMOLED panels is much higher than that of rigid AMOLED, but it is possible that costs will fall below that of rigid panels in the future as manufacturing yield rates improve,” Kang said.

Many large companies and startups are currently working on microLED technologies for display applications: from LED makers such as Epistar, Nichia or Osram to display makers like AUO, BOE or CSOT and OEMs such as Apple or Facebook/Oculus. Due to the multiplicity of players and the diversity of strategies, KnowMade, part of Yole Group of Companies underlines a complex and heavy patent landscape. “Enabling large scale microLED displays manufacturing requires to bring together 3 major disparate know-how and supply chain bricks including LED manufacturing, display manufacturing and technology transfer & assembly”, asserts Dr Eric Virey, Senior Technology & Market Analyst at Yole Développement (Yole), part of Yole Group of Companies. The microLED displays supply chain is therefore still under construction. Participants have to find the way to collaborate together and define the most efficient manufacturing approach.

display supply chain

While very promising in terms of performance, there are still multiple manufacturing challenges that need to be addressed to enable cost effective, high volume manufacturing of microLED displays. Based on its latest microLED display technology & market report , the “More than Moore” market research and strategy consulting company Yole proposes a live event titled Microled Displays: hype and reality | Hopes & challenges. Taking place on March 29 at 5:00 PM CET this webcast powered by I-micronews.com welcomes Dr Eric Virey from Yole. During this event, Dr Virey will expose the technical challenges and market opportunities of the microLED technologies. To register, click MicroLED Display.

“Even if the remaining technology roadblocks are removed, no company beside Apple and its startup Luxvue acquired in 2014 currently appear to have the positioning and leverage to enable the supply chain,” comments Yole’s expert. So what could happen?

If successful, microLED displays could have a profound impact on both the LED and display supply chains. Indeed, the development of large scale microLED displays requires the combination of three major disparate technologies: LED, TFT backplane and chip transfer. The supply chain is complex and lengthy compared with that of traditional displays. Each process is critical and managing every aspect effectively will be challenging. “No single player can solve all the issues and it seems unlikely that any will fully vertically integrate”, comments Dr Virey from Yole. And he details:

• Small companies could bring together the different technologies to serve the AR/MR market, but for high volume consumer applications such as mobiles or TVs, only a strong push from a leading OEM can enable a supply chain.
• Apple has a unique market positioning: and appears to be the most likely candidate with enough leverage and financial strength to bring all partners together.
• Other candidates including Oculus for example, have also invested in microLEDs for AR/MR applications.

So what will be the next step? Yole confirms: each company will attempt to capture as much added value as it can.

For LED makers, low defect requirements and high resolution features of microLED mean large investments in new clean room and lithography equipment which might be better suited to CMOS foundries.

Traditional display makers are used to manufacturing both back and front planes in an integrated fashion and delivering finished panels to OEMs. With microLEDs, they will push back against becoming component suppliers, only providing a TFT backplane to whichever participant will produce the final display assembly: OEMs or OSAT players.

In parallel, some companies will benefit from microLED displays independently of how the supply chain is shaped. These beneficiaries include MOCVD reactor and other LED equipment manufacturers as well as wafer suppliers.

Kateeva today announced that it is expanding its Silicon Valley headquarters. The company has leased an adjacent building at its Newark campus, adding 75,000 sq. ft. that is zoned for manufacturing and business operations. This brings Kateeva’s total campus footprint to 150,000 sq.ft. Kateeva moved to its current location in early 2015 to facilitate production ramp-up of its YIELDjet inkjet printing manufacturing equipment for the global flat panel display industry. Since then, headcount has nearly tripled to 330 people, and orders for YIELDjet systems have soared. With the new building, Kateeva’s doubles its manufacturing footprint, providing ample space to accelerate production.

Leading flat panel display manufacturers use Kateeva’s precision deposition equipment for cost-effective mass production of Organic Light Emitting Diode (OLED) displays. OLED technology is behind some of today’s most popular smartphones and tablets. Already, OLED screens curve around edges to enable unique form factors. Soon, when tablets, notebooks and smartphones can bend, roll and even fold without breaking, it will be thanks to OLED technology. OLED technology enables the production of displays on plastic (entirely free of glass), making them flexible and paper-thin.

Kateeva’s YIELDjet FLEX system for OLED TFE mass production

Kateeva’s YIELDjet FLEX system for OLED TFE mass production

Kateeva’s first product, the YIELDjet FLEX system, enabled a rapid transition from glass encapsulation to Thin Film Encapsulation (TFE) in new OLED production lines. The “freedom from glass” technology leap was the gateway to flexible displays. Each Kateeva inkjet printer is highly customized and built to extremely exacting specifications. Measuring approximately 2,000 sq.ft., the tool contains thousands of precision parts, and is differentiated by myriad innovations that are protected by 200 issued and pending patents. With the system, customers can achieve dramatically higher TFE yields and lower mass-production costs than what was previously possible with other deposition techniques. On an OLED mass-production line, Kateeva printers work in concert with tools from other leading equipment companies to process the panels.

Kateeva’s tools are designed and engineered in Newark, so the expansion will support the company’s growing R&D team. In addition, since Kateeva manufactures a majority of its products and components in Newark, the expansion will also support a large increase in its U.S. manufacturing capacity.

Kateeva’s President and Co-founder, Dr. Conor Madigan noted: “Kateeva’s manufacturing strategy utilizes a balance of production in Asia, as well as the U.S. This dual-region strategy generates optimum efficiencies and will continue as we grow. For now, our most complex and customized products will be built at our Newark facility where we can leverage our adjacent manufacturing and engineering teams to maintain highest quality while also satisfying our customers’ aggressive delivery timelines. This is far more difficult to achieve when our manufacturing and engineering teams are separated and remote. Building these products in the U.S. also helps us safeguard the intellectual property that differentiates our technology solution.”

Madigan listed other advantages of Kateeva’s newly expanded Newark HQ: “By obtaining an adjacent building we can maintain the operating efficiencies of a single site,” he said. “Also, in Newark we’re next door to several international airports, which is imperative for a manufacturer of capital equipment bound for production fabs in Asia. Finally, our location situates us ideally to draw talent from all regions in and around Silicon Valley.”

BOE, a Chinese display maker, takes top position in terms of large TFT-LCD display unit shipments in January 2017, according to IHS Markit (Nasdaq: INFO). For the first time ever, a Chinese display maker, taking a total share of 22.3 percent in unit shipments, is displacing South Korea’s display makers, the historical leaders in shipment volumes.

large display shipment

“BOE has been aggressively attacking the IT display market in shipment volumes at a time when top-tier panel makers started to turn focus away from this segment,” said Robin Wu, principal analyst of large display at IHS Markit.

BOE now takes number one position in larger-than-9-inch displays for tablets, notebook PCs and monitors in terms of unit shipment. In particular, notebook PC displays showed BOE taking a 29 percent share further widening the gap with the number two supplier Innolux, which took a 20 percent share. Meanwhile, the number one supplier for TV application is still LG Display with 21.4 percent followed by Innolux with 16.3 percent and BOE with 15.9 percent.

However, the South Korean panel makers are still holding their lead in terms of area shipment with LG display taking top position with 24.8 percent share followed by Samsung Display and Innolux, according to the latest Large Area Display Market Tracker by IHS Markit.

“South Korean panel makers still retain their advantage in large-sized TVs, a higher-demand segment that has benefited from increasing UHD TV penetration and consumer migration to TVs with larger screens. IHS Markit expects South Korean panel makers, known for their operational and technical strengths in large-size TV display manufacturing, will stay ahead of their Chinese competitors in terms of area shipments for the time being,” Wu said.

“That said, 2017 could be the year the Chinese display makers begin focusing on enriching their product portfolio, and make a play into the Korea’s strong hold for large-size TV displays,” he said.

According to latest IHS Markit Large Area Display Market Tracker, shipments of large-area TV panels decreased by 11 percent month-on-month (m/m), but increased by 4 percent year-on-year (y/y) to 51.7 million units in January 2017.

Unit shipments for applications in January 2017 were as follows:

  • For larger-than-9-inch tablet panels, shipments decreased by 20 percent m/m and 9 percent y/y.
  • For notebook PC panels, shipments declined 8 percent m/m but increased by 20 percent y/y.
  • For monitor panels, shipments dropped 6 percent m/m and kept flat y/y.
  • For TV panels, shipments were down 6 percent m/m and 3 percent y/y.

On an area basis, large panel shipments decreased by 8 percent m/m, but increased by 11 percent y/y in January 2017. Shipment area for LCD TV panels declined 7 percent m/m, due to seasonality but rose 11 percent y/y.

The flat-panel display (FPD) industry is in the midst of a historic wave of building new factories to manufacture active matrix organic light emitting diode (AMOLED) displays. This will drive $9.5 billion worth of AMOLED-specific production equipment purchases in 2017, according to IHS Markit (Nasdaq: INFO).

amoled equipment

According to the IHS Markit Display Supply Demand & Equipment Tracker, the equipment used for producing TFT backplanes will account for 47 percent of the total market in 2017, worth $4.4 billion in revenues. Organic light-emitting layer deposition and encapsulation tools will generate record revenues of $2.2 billion and $1.2 billion, respectively, this year.

“A variety of approaches can be used to deposit OLED materials. However, fine metal mask (FMM) evaporation tools, used for high-resolution mobile display production, account for the majority of the deposition equipment revenue in the current wave of new factory construction,” said Charles Annis, senior director at IHS Markit.

Evaporation machines are technically highly complicated, consisting of multiple cluster vacuum tools linked by robots. Each tool consists of evaporation sources and mask-docking capabilities, and requires substantial pumping systems. The tools are typically very large and can exceed 100 meters in length at a high-volume production factory. This subsequently requires significant capital outlays.

“The market for high-performance AMOLED deposition equipment is dominated by Canon Tokki, which accounted for over half of the market in 2016,” Annis said. “At least five other evaporation makers are rushing to take advantage of the explosive market opportunity. However, with strong panel maker interest in Canon Tokki’s unrivaled mass production experience, we expect the company to make further market share gains in 2017.”

AMOLEDs also require high-performance encapsulation to prevent sensitive organic light-emitting materials from environmental degradation. Encapsulation barriers are typically fabricated from metal, glass or stacks of thin films. However, a substantial share of the new AMOLED factories now under construction will target production of plastic, flexible displays, which rely on cost intensive, multi-layer thin film encapsulation (TFE).

“Flexible AMOLED makers have done an incredible job simplifying their TFE structures over the past several years. Even so, the productivity of depositing high-quality inorganic films and printing organic layers all in a closed environment remains a complicated challenge,” Annis said. “The requirement of a large number of deposition chambers and auxiliary tools make TFE lines one of the largest segments of the AMOLED equipment market.”

With an estimated $23 billion of expenditures on AMOLED production equipment between 2016 and 2018, equipment makers, particularly those offering deposition and encapsulation solutions, will be enjoying a historic sales opportunity.

The IHS Markit Display Supply Demand & Equipment Tracker covers metrics used to evaluate supply, demand and capital spending for all major FPD technologies and applications.

The Semiconductor Industry Association (SIA), representing U.S. leadership in semiconductor manufacturing, design, and research, today announced the global semiconductor industry posted sales totaling $338.9 billion in 2016, the industry’s highest-ever annual sales and a modest increase of 1.1 percent compared to the 2015 total. Global sales for the month of December 2016 reached $31.0 billion, equaling the previous month’s total and bettering sales from December 2015 by 12.3 percent. Fourth quarter sales of $93.0 billion were 12.3 percent higher than the total from the fourth quarter of 2015 and 5.4 percent more than the third quarter of 2016. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

“Following a slow start to the year, the global semiconductor market picked up steam mid-year and never looked back, reaching nearly $340 billion in sales in 2016, the industry’s highest-ever annual total,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Market growth was driven by macroeconomic factors, industry trends, and the ever-increasing amount of semiconductor technology in devices the world depends on for working, communicating, manufacturing, treating illness, and countless other applications. We expect modest growth to continue in 2017 and beyond.”

2016 worldwide revenue

Several semiconductor product segments stood out in 2016. Logic was the largest semiconductor category by sales with $91.5 billion in 2016, or 27.0 percent of the total semiconductor market. Memory ($76.8 billion) and micro-ICs ($60.6 billion) – a category that includes microprocessors – rounded out the top three segments in terms of total sales. Sensors and actuators was the fastest growing segment, increasing 22.7 percent in 2016. Other product segments that posted increased sales in 2016 include NAND flash memory, which reached $32.0 billion in sales for a 11.0 percent annual increase, digital signal processors ($2.9 billion/12.5 percent increase), diodes ($2.5 billion/8.7 percent increase), small signal transistors ($1.9 billion/7.3 percent), and analog ($47.8 billion/5.8 percent increase).

Regionally, annual sales increased 9.2 percent in China, leading all regional markets, and in Japan (3.8 percent). All other regional markets – Asia Pacific/All Other (-1.7 percent), Europe (-4.5 percent), and the Americas (-4.7 percent) – saw decreased sales compared to 2015.

“A strong semiconductor industry is strategically important to U.S. economic growth, national security, and technological leadership,” said Neuffer. “We urge Congress and the new administration to enact polices in 2017 that spur U.S. job creation, and innovation and allow American businesses to compete on a more level playing field with our competitors abroad. We look forward to working with policymakers in the year ahead to further strengthen the semiconductor industry, the broader tech sector, and our economy.”

By Denny McGuirk, SEMI president and CEO

“Do not go where the path may lead, go instead where there is no path and leave a trail.”  Attributed to Ralph Waldo Emerson, this could be the credo of our industry.  Moore’s Law has created $13 trillion of market value and we’ve been pioneering the way forward – since even before Gordon Moore made the famous “observation” that became Moore’s Law more than 50 years ago.  Our industry paved the road forward with advancements in design, materials, processing, equipment, and integration, traveling at the speed of exponential growth number in transistors per chip (doubling approximately every two years).

Today, globally, we’re shipping more than one trillion ICs per year!  Leading-edge chips boast more than 10 billion transistors at the advanced 10nm (gate length) technology node and are made with 3D FinFET architectures formed by 193nm wavelength immersion multi-patterning lithography.  It’s become a very challenging – and very expensive – road (a single lithography tool alone costs in the tens of millions of dollars).  The companies building the road ahead are bigger and fewer as massive bets now need to be placed on new fabs costing more than $5 billion and even $10 billion and where a new single chip design alone costs more than $150 million to bring into production.

What follows, in Part 1 of this two-part article, is a quick look back at the industry in 2016 and the road ahead in 2017 followed by what SEMI achieved in 2016 and where SEMI’s road will lead in 2017 to keep pace our industry charging forward where there is no path. Part 2 (next week’s Global Update) will focus on SEMI 2020 initiatives.

A look back at 2016: “Straight roads do not make skillful drivers”

2016 was definitely not a straight road; truly it was a wild ride – so, SEMI members have become extremely skilled drivers. The semiconductor manufacturing industry had a slow first half with pessimism building throughout the first quarter, but by April semiconductors bottomed and NAND investment and a slate of new China projects drove a strong second half.  For semiconductor equipment, SEMI’s statistics indicate global sales in 2015 were $36.5 billion and 2016 came in at $39.7 billion, ultimately ending up about 9 percent.  For reference semiconductor materials in 2015 was $24.0 billion and 2016 came in at $24.6 billion, up nearly 2.6 percent year-over year (YoY).

But, it turns out, that’s not half the story.  2016 was full of surprises.  At the geopolitical level, Brexit, an impeachment in South Korea, and a Trump win were wholly unanticipated and leave a lot of questions as to how that road ahead might look.  In technology, the Galaxy Note 7 mobile phone became an airline hazard announcement and stalwarts like Yahoo! faded into the background (now part of Verizon).  In part due to challenges of the road ahead (and because the cost of capital remained low) M&A fever continued in semiconductors with more than $100B in deals announced in 2016.

It was an astonishing year for combinations with huge deal announcements such as Qualcomm buying NXP for $47 billion and SoftBank buying ARM for $32 billion.  Meanwhile, mergers in the equipment and materials space continued, to name a few notables ASML’s acquisition of Hermes Microvision, DuPont and Dow announcing the intent to merge (announced December 2015, but still in the works), and Lam Research and KLA-Tencor ultimately calling off their deal due to complications of regulatory pushback.  The extended supply chain was mixing things up, too, with acquisitions like the announcement by Siemens to acquire Mentor Graphics.  It has been very active, overall.  This was the second year of semiconductor M&A deals valued at more than $100 billion, a signal that size and scale is critical to build the road ahead.

A look ahead: “Difficult roads often lead to beautiful destinations”

With all the talk about roads, it’s no surprise that the automotive segment is gathering momentum as a strong growth driver for the electronics supply chain.  Not only is there increasing electronics content in cars for comfort and infotainment, but also for assisted and autonomous driving and electric vehicles which are ushering in a new era of electronics consumption.

Along with automotive, IoT (Internet of Things), 5G, AR/VR (Augmented Reality and Virtual Reality), and AI (Artificial Intelligence) round out a set of powerful IC and electronics applications drivers (see figure).  Per an IHS Study, 5G alone may enable as much as $12.3 trillion in goods and services in 2035. Gartner’s most recent forecast is cause for optimism further down the electronics manufacturing supply chain.  Gartner see IC revenue growing from 2016’s $339.7 billion to 2017’s $364.1 billion up 7.2 percent and growing further in 2018 at $377.9 billion up 3.8 percent.  For semiconductor equipment, SEMI’s forecast indicates 2015 was $36.5 billion, 2016 will come in at $39.7 billion, and 2017 is projected to be $43.4 billion, pointing to both 2016 and 2017 experiencing approximately 9 percent YoY growth.

In 2017, China investment is projected to continue as a major driver, likely consuming over 16 percent of the total global equipment investment (second only to South Korea).  SEMI is currently tracking 20 new fab projects.  Investments come from both multinationals and local Chinese ventures.  A sign of the rise of China is China’s upward production share trend of its own IC consumption market (IC Insights): 8 percent in 2009, 13 percent in 2015, and 21 percent in 2020. Further down in the electronics supply chain, fab equipment related spending in China will rise to more than $10 billion per year by 2018 and remain at that level or above for subsequent years.

NAND will continue to be a major driver with 3D NAND investment leading the way.  Silicon in Package (SiP) and heterogeneous integration will increasingly be solutions to augment traditional feature scaling to fit more transistors into less space at lower costs.  Materials innovations will be relied upon to solve front-end and packaging challenges while standard materials will be the focus of increased efficiencies and cost reduction. 200mm fab capacity will grow and stimulate new 200mm investment with upside driven by power devices and MEMS segments.  Investment in foundry MEMS will grow by an estimated 285 percent (2015 to 2017).

“There are far better things ahead than any we leave behind”

SEMI, the global non-profit association connecting and representing the worldwide electronics manufacturing supply chain, has been growing with the industry for 47 years.  SEMI has evolved over the years, but it has remained as the central point to connect.  Whether connecting for business, connecting for collective action, or connecting to synchronize technology, SEMI connects for member growth and prosperity.

As a reminder, here are SEMI’s mission, vision, and 2020 strategic focus areas.

  • Mission — our focus for the next five years
    • SEMI provides industry stewardship and engages our members to advance the interests of the global electronics manufacturing supply chain.
  • Vision — what we stand for
    • SEMI promotes the development of the global electronics manufacturing supply chain and positively influences the growth and prosperity of its members.  SEMI advances the mutual business interests of its membership and promotes a free and open global marketplace.
  • Members’ Growth — 2020 strategic focus
    • SEMI enables member growth opportunities by evolving SEMI communities and building new communities across the global electronics manufacturing supply chain via cooperation, partnerships, and integration.
  • Members’ Prosperity — 2020 strategic focus
    • SEMI enables members to prosper by building extended supply chain collaboration forums providing opportunities to increase value while optimizing the supply chain for SEMI members.

Our industry is in the midst of a vast change.  To deal with the escalating complexity (making a semiconductor chip now uses the great majority of the periodic table of the elements) and capital cost, many companies have had to combine, consolidate, and increasingly collaborate along the length of the electronics manufacturing supply chain.

Some companies have broadened their businesses by investing in adjacent segments such as Flexible Hybrid Electronics (FHE), MEMS, Sensors, LEDs, PV, and Display.  Lines are blurring between segments – PCBs have morphed into flexible substrates, SiP is both a device and a system.  Electronics integrators are rapidly innovating and driving new form factors, new requirements, and new technologies which require wide cooperation across the length of the electronics manufacturing supply chain and across a breadth of segments.

The business is changing and SEMI’s members are changing.  When SEMI’s members change, SEMI must change, too – and SEMI has, and is.  SEMI developed a transformation plan, SEMI 2020, which I wrote about at the beginning of 2016.  We’re well on our way on this path and in next week’s e-newsletter Global Update, I’d like to update you on what we’ve accomplished and what’s to come.