The dramatic downturn in chip revenues in 2019 will be the worst in a decade. However, the decline will partly reverse itself in late 2020 with the deployment of 5G technology, especially for smartphones, according to a new report from IHS.
There will be a “massive economic impact exerted by the deployment of 5G technology,” the analyst firm said on Tuesday.
Global chip revenues will rise by 5.9% to $448 billion in 2020, up from 422.8 billion in 2019, IHS said, an estimate in line with other analysts. The market will plunge 12.8% for all of 2019 over 2018, when revenues were about $485 billion.
Deployment of 5G will be the main factor in the recovery, even though 2020 will be far short of 2018. The 5G impact will renew the wireless industry but will also have side benefits for global businesses and economies, IHS said. “5G’s impact will spread far beyond the confines of the tech industry, impacting every aspect of society and driving new economic activity that will spur rising demand for microchips,” said Len Jelinek, an IHS analyst, in a statement.
He noted that 5G will bring lucrative new service opportunities for mobile network operators, but its greater impact will be on new business models. “5G promises to redefine work processes and rewrite the rules of competitive advantage,” IHS said, estimating that 5G will enable up to $1.9 trillion in economic output in the U.S. along by 2035.
Jelinek said that when the smartphone business is viewed as an application market, it is the largest consumer of semiconductors of any industry, dwarfing semiconductor demand from major segments such as industrial, automotive, computing and consumer electronics. Smartphones are expected to consume nearly $88 billion in global chip revenues in 2019.
As smartphones see an increase in unit shipments in 2020, there will be a boost in the semiconductor market for smartphones, with chips for this segment rising by 7% in 2020, following a 22% drop in 2019.
Semiconductor growth will also occur in automotive, IoT, data centers and industrial. The 2019 downturn has been blamed on a steep decline in DRAM and NAND memory pricing that began in late 2018 due to an oversupply of such components. IHS predicted a slight improvement in memory pricing in late 2019, but the slight improvement will be “unsustainable” with revenue flat or in decline in the first and second quarters of 2020.
“The real recovery that the semiconductor industry has been hoping for will materialize in the second half of 2020, courtesy of the 5G revolution,” IHS said.