The economic shock of COVID-19 on the semiconductor industry was pronounced in March and early April but seems to have subsided somewhat nearly two months later, according to analysts who follow the sector carefully.
“The coronavirus drove the semiconductor industry towards recession and now the work at home economy is pulling it out,” VLSI Research analyst Dan Hutcheson reported last Friday. The week before, he reported, semiconductor sales “continued to run well above 2019 levels” and he predicted a second half 2020 revenue ramp-up similar to what was seen in 2018.
Hutcheson cited a “ surprisingly strong recovery from COVID in late March and April” that caused him to forecast an increase in semiconductor equipment sales of 7% for the second quarter, up from a previous forecast of a decline by 6%. And, he said integrated circuit sales will jump by 1%, compared to a previous forecast of a decline of 4%.
In one example of survival during the pandemic, Hutcheson cited how Analog Devices shifted its operations to manufacture devices needed in medical gear to fight COVID-19. The result was operations at normal capacity and earnings results that were within original guidance for the fiscal quarter ending May 2. Nonetheless, ADI saw revenues of $1.3 billion for the quarter, a reduction of 14% from the same quarter in 2019.
With China suffering the first deaths from COVID-19, the nation has also pulled out first. “A new tale of two semiconductor markets is emerging,” Hutcheson said. “China is booming while the rest of world recovers from coronavirus.”
It’s worth looking back two months to see how the VLSI Research outlook compares to what several chipmakers were saying in early April about the predicted impact of COVID-19. ADI at that point expected a $70 million downward revision in operating income, while Marvell reported a $35.9 million reduction and On Semiconductor reported an $80 million reduction, according to a report from Statista on April 6.
While Hutcheson is relatively upbeat about the semi marketplace, some other analysts are downbeat.
Walt Custer, an analyst at Custer Consulting Group, wrote in a blog on the SEMI site on May 18 that “tough and unpredictable times are ahead.”
He reported that 213 global electronic equipment manufacturers saw a decline of nearly 6% in revenues in the first quarter. He also noted that semiconductor and semi equipment growth rates were positive in the first quarter but have peaked. Further slowing or an actual semiconductor industry downturn is ahead, he added. A slowdown is “likely,” he concluded.
“The balance of 2020 appears to be in for some tough times with the COVID-19 virus impact difficult to predict and political response unpredictable,” Custer concluded.
While the future is uncertain, there’s little question that semiconductor stocks began a steep decline from their one-year high on Feb. 19 when the Philadelphia Semiconductor Sector Index of 30 companies hit 1,979.50. By March 18, that index had fallen to 1,286.84. Over the past week, that index has been cycling up and down and rallied to close Wednesday at 1,847.31.
Of course, the semiconductor industry is just one sector in the overall economy which has taken major hits in travel and retail especially. Hertz, the rental car company, filed for chapter 11 bankruptcy protection last Friday . On Thursday, the US Labor Department reported that jobless claims filed for last week totaled 2.1 million, bringing the total number of claims to about 41 million since the virus was declared a pandemic. One measure that is positive on the jobs front: continuing claims dropped by 4 million to more than 21 million.