SEMI trade group, whose 2,000 semiconductor manufacturers including Applied Materials of the U.S. and Japan-based Tokyo Electron, published a chilling note this week that warned spending on chipmaking equipment in 2019 would collapse as concern about a global trade recession, fueled by a deepening trade war, could be immient.
Semiconductors are closely observed because they sometimes serve as a lead on global macro.
The industry trade group said sales are expected to drop 18% this year to $52.7 billion, the first decline in over four years; the trade group initially projected an 8% decline to $59.6 billion.
The industrial slowdown reflects uncertainty among major chipmakers that buy fab equipment.
Demand for smartphones and data servers fueled the industry in the last four years – but demand has recently dropped as memory chip prices decline.
With a global synchronized decline gaining momentum, investment in chip-heavy data centers is one of the biggest drags on the industry. Capital spending by Apple, Google, and IBM declined YoY in 1Q19, U.S.-based Synergy Research Group says.
SEMI cited the out of control trade war and sanctions against Huawei Technologies, the third largest semiconductor company in the world, as the leading cause of a downturn in the industry.
The group predicts fab equipment spending will fall in every market except Taiwan and North America. The steepest declines will be in South Korea and other APAC countries.
In a separate report, Teddy Vallee, CIO of Pervalle Global, indicates that despite Wall Street forecasting a 2H19 rebound, the semiconductor industry will continue to weaken through 1Q20.
“Our leads still have semi sales continuing lower into years end/Q12020. The most recent coincident data confirms this, as semi exports from South Korea for the first ten days of July fell by 25%. This was with an extra selling day vs. the prior year as well.”
With that being said, it seems that iShares PHLX Semiconductor ETF (SOXX) is headed for a retest of the 170 range in 2H.