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Business trends

Global semiconductor market to shrink 12% in 2019: trade group

Outlook downgraded as US-China trade war eats into demand

Semiconductor wafers are processed at a facility in Germany.   © Reuters

TOKYO -- The global market for semiconductors will contract 12.1% to $412 billion this year, an industry group forecast Tuesday, amid growing economic uncertainties from such factors as the U.S.-China trade war.

In its previous report last autumn, World Semiconductor Trade Statistics had predicted 2.6% growth for 2019.

The market has gone through booms and busts every three to four years. The rapid growth of 2017 and 2018 contributed to the drop-off in the new forecast, but the contraction exceeds the actual 2009 drop of 9% in the aftermath of the global financial crisis. The market last contracted by a wider margin when it shrank 32% in 2001, after the dot-com bubble burst.

The 2019 downgrade was blamed on shifts in world affairs, including the trade war, Brexit and weak smartphone demand. U.S. data center operators that had bought large amounts of chips through 2018 began reducing their stockpiles. Monthly figures for the semiconductor market -- represented as a three-month moving average of sales -- have declined from year-earlier levels since January.

Demand has plunged for memory chips used in data centers, smartphones and elsewhere. Memory sales, which account for roughly 30% of the semiconductor market, are seen tumbling 30.6% to $109.5 billion in 2019.

Memory prices continue to languish, even as chipmakers move to cut production or postpone capital spending. Large-lot prices of standard DRAMs are almost 30% lower than in October, and prices of NAND flash memory have fallen about 30% in half a year.

Toshiba Memory Holdings posted a 28.4 billion yen ($262 million) operating loss for the January-March period after its predecessor reported black ink the previous quarter. "There are no signs yet [that memory chip demand] has hit bottom," said Atsuyoshi Koike, Japan chief of SanDisk, under Toshiba Memory partner Western Digital.

Builders of semiconductor-manufacturing equipment are also affected. Tokyo Electron in late May revised a three-year business plan released in 2018, extending the time frame for meeting the targets to within five years.

The market "will bottom out in the second half of 2019, but considering manufacturers have become cautious about investment due to U.S.-China trade frictions, the pace of recovery will likely be slow," said Akira Minamikawa, a principal analyst at IHS Markit.

The U.S. in May essentially banned exports to Huawei Technologies, prompting some chipmakers to suspend transactions with the Chinese telecommunications equipment producer. Stepped-up American tariffs on goods from China are another negative, and a further slowdown in the Chinese economy would have repercussions for trading partners.

The semiconductor market is anticipated to grow over the medium term as 5G wireless technology and next-generation automobiles take root. But for now, industry players will continue to assess the timing of the market bottoming out.

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