The Cyclical Nature of the Semiconductor Industry
Monday February 10, 2020
The semiconductor industry is famous for being a cyclical industry, due to the relatively short lifespan of semiconductor items, where technology becomes obsolete quickly when new and faster applications are developed. Upswings in the industry occur when advances are made, causing high demand and short supply of the advanced products. On the flip side, oversupply causes inventory buildup, resulting in falling prices and a downswing in the market. The two key factors influencing the swings in the market are inventory and worldwide economic growth.
Semiconductor Industry Swings (EE Times)
2019 was a difficult year for the semiconductor industry, especially after years of buoyant demand growth. The current slump may be large, but it is not unusual. The past 30 years have seen a market slump every 4-5 years, each of which lasted ~12-15 months, on average (Euler Hermes).
However, the end of the slump is already in sight. Every major downturn in the semiconductor industry has ended with the arrival of a new technology, and in 2020, this will be 5G. 5G is expected to completely change the way we use mobile. It will turn mobile into a robust and pervasive platform, changing the face of how business is done and transform industries and economies around the globe. By 2035, it is forecast that 5G will enable $1.3 to $1.9 trillion worth of economic output in the US, which is the equivalent to the amount spent in 2016 on the US on automobiles (IHS)!