Recently, market research firm IC Insights produced a report indicating that the semiconductor sales slump won’t be ending soon. The firm predicts capital expenditures on components will fall by 15 percent through the rest of this year. The organization also believes chip spending will decrease by five percent in 2020.
Why the Industry is Still Struggling
IC Insights attributes the decline in semiconductor sales to two factors: a worldwide supply glut and the ongoing U.S.-China trade war.
The firm notes that the market’s current weakness is due in part to the success it enjoyed last year. In 2018, the component industry rose by 11 percent year-to-year because of rising demand in the data center and smartphone segments. However, this year, both of those markets experienced historic declines. As a result, manufacturers have excess quantities of components, particularly, high-capacity DRAM and NAND memory chips.
Until consumer interest in personal electronics rebounds, the semiconductor industry will continue treading water. Even then, chipmakers won’t see sales increases until device manufacturers burn through their inventory glut.
Trade Tensions Delay 5G Deployment
Earlier this year, chipmaker Qualcomm predicted that the deployment of 5G technology would generate $12.3 trillion in revenue by 2035. But the corporation’s predictions were based on now-outdated estimates regarding the launch of 5G networks and mobile devices.
Currently, wireless carriers are struggling to set up the fifth-generation cellular data networks because of the Sino-American trade conflict. Despite its controversial reputation, Chinese equipment maker Huawei was set to help build 5G networks in America, Australia, and Europe. But Washington’s efforts to keep the corporation out of western 5G infrastructural development have delayed the technology’s global rollout.
Nations like Britain and Italy are partnering with Huawei regardless of U.S. warnings, but much later than initially scheduled. Also, the conglomerate intended to sell its 5G handsets to consumers in Japan and Britain months ago, but trade tensions have delayed those product launches until September.
Market analysts agree that 5G technology will spark another boom period in consumer electronics. But the trade war has pushed the start of that spending resurgence into 2020. Therefore, the semiconductor industry won’t feel that impact of that recovery until the middle of next year at the earliest.