Cyclical upturn continues in 2014: Positive yet cautious expectations persist

McClean Color copyBill McClean, President, IC Insights

In 2013, the IC industry emerged from a difficult 5-year period of minimal growth and started on its next cyclical upturn, a welcome piece of news.  From 2007-2012, the IC market grew at an average annual rate of just 2.1%.  In IC Insights’ opinion, the current cyclical upturn that started in 2013 will continue with several solid years of growth, peaking with 11% market growth in 2016.  The IC market CAGR is forecast to nearly triple to 5.8% in the 2013-2018 time period.  During this time, unit shipments are forecast to increase at an average annual rate of 6.3% and the total IC average selling price (ASP) is forecast to decline at an average rate of 1.0%.

IC Insights believes that IC industry cycles are becoming increasingly tied to the health of the worldwide economy.  It is rare to have strong IC market growth without at least a “good” worldwide economy to support it.   Consequently, over the next five years, annual global IC market growth rates are expected to closely mirror the performance of worldwide GDP growth.

After increasing 2.8% in 2013, global GDP is forecast to rise to 3.4% in 2014 (FIGURE 1), which is on par with the 30-year average.  The U.S., Japan, U.K., and the Eurozone (i.e., mature economic markets) are each forecast to experience improved, though still tempered, GDP growth in 2014.

In the U.S., the most significant factor holding back better GDP growth has been the high unemployment level.  The unemployment level gradually improved and stood at 7.0% in December 2013.  Some forecasts show it decreasing to 6.5% by the end of 2014.  An improving employment picture, strong orders for new equipment, and upward-trending economic indicators add up to positive momentum for the U.S. economy heading into 2014.

 FIGURE 1. Global GDP is forecast to rise to 3.4% in 2014, which is on par with the 30-year average.

FIGURE 1. Global GDP is forecast to rise to 3.4% in 2014, which is on par with the 30-year average.

China, which is the leading market for personal computers, digital TVs, smartphones, and automobiles, is forecast to lose more economic momentum in 2014.  Its GDP is forecast to increase 7.5% in 2014, which continues an annual downward trend that started in 2010.  China’s GDP growth was 7.7% in 2013.   China’s new leadership is attempting to shift the country’s growth from being highly dependent on infrastructure investment and exports to one that relies more on consumer consumption.

The historical correlation between worldwide GDP growth and semiconductor industry growth is good, but IC Insights believes that this correlation will be very good in 2014. Using a worldwide GDP forecast of 3.4%, the most likely range for worldwide semiconductor market growth in 2014 is 2-12%, with IC Insights’ forecast calling for 7% growth in the 2014 semiconductor market.

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