The report looks to provide analysis of how the pandemic is impacting and influencing several high-tech industries.
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 affected by the pandemic. The expanding pandemic has, however, lowered device manufacturers’ demand for IC design. More specifically, 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.
LED chip manufacturers did not stop operations across the board during the Lunar New Year; some personnel still remained at the factories, which manufactured small batches. Therefore, their work resumption has been relatively smooth. However, due to concerns about possible shortage of upstream raw materials, especially the sapphire substrate, manufacturers have raised their capacity utilization rate of LED epitaxy process in March to above 70%, so as to increase their inventory in response to the impact of price hikes. In contrast, the work resumption rate of LED chip segment has been relatively low, mainly because the current LED chip inventory level is high, and the demand from clients has not increased significantly. Currently, in addition to the slight increase in prices of a small number of low-end LED chips, the rest of the LED chip prices remain unchanged.
The LED packaging industry places a high demand on manpower. Although the Chinese government has issued a request for manufacturing sites to fully resume work, many people in the affected areas are currently unable to return to the factories. Even workers returning from areas unaffected by the pandemic need to be quarantined for a period of time before they may enter production lines, once these people have arrived at the factories. Thus, work resumption rate in March has been sitting at about 50-60%. However, due to the weak demand for end products, LED suppliers have enough inventory to supply market needs, with a few exceptions, which are applications requiring precise specifications.
In terms of the peripheral materials, sapphire substrate factories place a high demand on manpower, so they are also facing the issue of work resumption. Thus, the current supply of sapphire substrate is slightly tight. Because long-term sapphire substrate prices have been sluggish, many suppliers hope to take advantage of the tight supply by increasing prices. In terms of chemical gases and liquids, the biggest challenge facing LED manufacturers is the delivery of chemical materials needed for manufacturing. However, transportation problems have been gradually resolved, at the Chinese government’s strong insistence on work resumption.
The initial concerns about supply chain disruptions and shortages are gradually subsiding as an increasing number of employees are returning to work in China. The work resumption rate of the overall supply chain has increased from 30% in February to 50% in March, which was well on its way to normalcy. The logistics efficiency has also started to improve. Nevertheless, it has yet to return to normal.
Other regional markets, on the other hand, have implemented city- or nationwide shutdown, which will impact the markets with grid-connection deadlines to a certain extent. Some markets, including Taiwan, have announced the extensions of grid connection deadlines. However, the demand that is supposed to emerge in the first half of 2020 will largely arise only in the second half of the year. It is currently estimated that the total demand for the whole year has not changed much. It is estimated to range from 110 to 130 GW.