Semiconductor Industry’s Ripple Effect Post-COVID-19

IDC analyst Mario Morales talks about the implications of the coronavirus pandemic for workers, schools and the semiconductor industry.

By Tom Mangan

By Tom Mangan April 03, 2020

Semiconductors are the unseen infrastructure of humanity’s response to the coronavirus pandemic. 

Billions of microscopic transistors on wafers of silicon help scientists crunch data in their quests for treatments and vaccines. The microprocessors in laptops, smartphones, data centers and high-speed networks help schools from kindergarten to graduate school reinvent instruction on the fly. Computer chips power multimedia tools that enable videoconferencing and working from home.

Even in quarantine, it’s easy to see the local and global dependency on semiconductors. Internet services and the logistics teams need to deliver packages. Grocery store personnel who stay on the job are at considerable risk of infection. Frontline doctors, nurses and first responders confront the human toll of COVID-19, the disease the coronavirus causes. They all depend on computing devices and the microchips soldered into them. With that in mind, it bears asking: How is the chip industry holding up in this new world, and what does it expect as the pandemic unfolds in the months to come? 

In a Tech Barometer podcast interview, Mario Morales, program vice president for semiconductors and enabling technologies at International Data Corp. (IDC) explained the impact COVID-19 is having on the semiconductor industry, which affects so many aspects of daily life. An expert on technology for more than 25 years, Morales talked about shifts in the chip sector in 2019, the rise of telecommuting as the pandemic spread, and the prospects for industry growth over the course of 2020.  

The Semiconductor Industry Before the Pandemic Hit

The semiconductor industry limped into 2020 with only modest growth prospects. Morales noted that demand for semiconductors had surged in 2018 as enterprises and cloud services ramped up their hardware purchases. That created oversupply in 2019, which drove a 12% decline in the overall semiconductor market. Consequently, analysts expected year-of-year growth of about 2%, he said.

Then came the coronavirus. In February 2020, travel bans, quarantines and stay-home edicts started interrupting supply chains, though conditions in China started to improve in March after the nation shut down entire cities like Wuhan, the epicenter of the original outbreak.

“Keep in mind that China is the largest consumer and supplier of PCs, smartphones, automotive and tablets,” Morales said. With China driving a third of the global semiconductor market (about $130 billion in 2019), anything tripping up microchip sales sends ripples through the global supply chain of computing components and devices. 

Those ripples soon became waves washing over entire economies.

As COVID-19 Went Global

To slow the epidemic, China brought commerce to a halt across a wide swath of the country. Social-distancing emptied the streets of Wuhan, population 11.1 million, and would do much the same in Europe and the United States within weeks.

Anybody who could work from home soon got the opportunity. Around the offices of IDC, remote work was already becoming much more popular before the pandemic.

“We're dedicating a lot of research to that space just because we are seeing a shift in the way work is done, especially as more and more folks are remote,” Morales said. “At IDC, over a third of our employees before this crisis were already operating remotely.”

How well will the world adapt to more remote work?

“I think that remote work does work well in places like the U.S. and Europe,” Morales said. Asian commercial cultures, by contrast, tend to require more in-person interactions, he added, so the adjustment might be more difficult.

Adjusting to pandemic realities extends to education in particular.

“There's over 30 million children that attend just the public schools in the U.S.,” Morales said.  “Now, if they're all not going to school right now, they're all going to start using different types of applications like Zoom to stay somewhat connected to their classrooms and their teachers.”

“Where I see a big change is when you start thinking about shelter-in-place and work-at-home scenarios. You're going to need a lot more internet infrastructure,” he added. “So, that means more servers and larger data centers to support the streaming services.”

Thus, demand for computing infrastructure should support the semiconductor market in the months ahead. Even so, pandemic-induced disruptions fog the view.

What’s Next for the Semiconductor Industry

Morales and his fellow IDC analysts took a hard look at the chip industry in a report titled “Impact of COVID-19 on the Worldwide Semiconductor Market Forecast.” Among the report’s projections for 2020:

  • Almost 80% chance of a notable decline in the global semiconductor market

  • Over 50% likelihood of the industry declining at least 6%

  • One-in-five chance of a rapid rebound after an initial sharp contraction

Morales said that before the pandemic erupted, IDG expected the introduction of 5G smartphones in 2020 to fuel demand for semiconductors. Moreover, tech titans like Google, Facebook, Amazon, Microsoft and others were expected to resume investing heavily in cloud infrastructure. And enterprises were likely to invest more in their own private clouds.

The pandemic is putting the brakes on those plans.

“In some cases, it could be one or two quarters of delay,” Morales said.

The path forward in the next few months has so many variables that it’s all but impossible to anticipate the most likely outcome. Each nation will vary in its ability to contain the pandemic. Weeks or months of shelter-in-place take their toll on demand for everything — including the components at the core of computing.

“You look at energy prices now, and you've seen where the price of oil is going,” Morales said. “It tells you a lot about where demand potentially goes. That means that people are not driving as much. You've got airlines now basically hunkered down and not flying. That has an immediate impact on energy prices.” 

That kind of economic fallout will proliferate throughout the economy in response to the pandemic. If people spend less on technology in the first half of the year, then the semiconductor industry could pay the price in the second half, Morales noted. 

Ultimately, semiconductor spending should rebound, particularly in areas like technology infrastructure that are integral to long-term technology transformations.

“You're seeing investments in infrastructure for smart cities, for smart buildings,” Morales said. Once those projects get going, it’s difficult to stop them — though they may face short-term delays.

“I think inevitably they do come back,” he concluded. “And they are going to be very important and foundational to the semiconductor market returning back to growth.”

 

Tom Mangan is a contributing writer. He is a veteran B2B technology writer and editor, specializing in cloud computing and digital transformation. Contact him on his website or LinkedIn.

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