The Industry’s Wild Ride in 2015 & Thinking Two Steps Ahead in 2016
By Denny McGuirk, SEMI President & CEO
“In like a lion, out like a lamb” is just half of the story for 2015. While initial expectations forecasted a double-digit growth year, the world economy faded and dragged our industry down to nearly flat 2015/2014 results (http://www.semi.org/en/node/60181).
However, 2015 will be remembered for its wild ride that fundamentally changed the industry. In 2015 a wave of M&A activity swept across the industry supply chain—unlike any single year before—with scores of transactions and notable multi-billion dollar companies absorbed. In 2016 we’ll be working within a newly reconfigured supply chain.
Increasingly in this business landscape, collaboration is required simultaneously across the extended supply chain—customers’ customers’ customers are now routinely part of the discussion in unit process development. Facilitating interaction and collaboration across the extended supply chain is part of what SEMI does and I will cover how SEMI does that. But first, let’s review what’s happened and what’s happening.
2015 down 1%. In Like a Lion, Out Like a Lamb
2015 had an optimistic start with a strong outlook and good pace in Q1 and 1H. In January 2015 forecasters projected semiconductor equipment and materials growing in a range of 7% to nearly 14% vs. 2014. Global GDP, as late as May 2015, was pegged at 3.5% for 2015 after coming in at only 3.4% in 2014. In August, estimates dropped to 3.3%, in November estimates dropped further to 3.1% for the year.
As our industry has matured, semiconductor equipment and materials growth rates are ever more tightly correlated to shifts in global GDP. With the global GDP unexpectedly dropping, the second half saw declining book-to-bill activity and the year will likely end flat or slightly negative for 2015. Though nearly flat, the numbers are still impressive with a healthy $37.3B annual revenue for semiconductor manufacturing equipment and $43.6B for semiconductor materials.
What is notable is since the 2009 financial crisis, electronics, chips, and semiconductor equipment and materials markets have been much more stable year-to-year than in the years prior to 2009. Also, the movement of the three segments is much more synchronized compared to the earlier years of boom and bust. For SEMI’s members this means cycles are becoming more muted—enabling members to shift business models accordingly to better maintain prosperity.
2015 $125B+ M&A. New Business Cards for Silicon Valley Icons and Global Titans
2015 is a year that will be viewed as an inflection point in our industry. The unprecedented M&A volume (more than $125B for semiconductor related companies) and the size of individual deals through the electronics supply chain will permanently change the industry.
While there have been waves of consolidation for semiconductor Integrated Device Manufacturers (IDMs) in the 80s and 90s, and semiconductor equipment and materials in the 90s and 00s, the fabless semiconductor companies are the latest wave undergoing consolidation. Although, in 2015, not just fabless, but all segments saw major deals—even iconic chemical brands DuPont and Dow Chemical announced their intention to merge.
Large and familiar brands like Broadcom (Avago), SanDisk (Western Digital), Altera (Intel), Freescale (NXP), and KLA-Tencor (Lam Research) have been purchased and will continue forward as part of their acquirers. China is on the move with its ambitions to quickly grow its indigenous semiconductor supply chain with recent acquisitions of ISSI, OmniVision, NXP RF power unit, and notably Mattson in the semiconductor equipment segment.
In an age when new fab costs are pushing double-digit billions of dollars and leading edge device tapeouts are surpassing $300M per part, consolidation is a strategy to increase scale, leverage R&D, and compete better. For SEMI’s members, the winner-take-all stakes increase and raise expectations for technology, product performance, application development, speed, and support. This, in turn, means that SEMI members have an increased need for a newly drawn pre-competitive collaboration model along the extended electronics supply chain and for Special Interest Groups (SIGs) to drive collective action in focused sub-segments and for specific issues.
2016 up ~1%. Stay Close to Your Customer and Your Customer’s Customer and …
Current projections for semiconductor equipment and materials suggest that 2016 will not be a high growth year. The span of forecasts ranges from almost -10% to +5%. At SEMI’s Industry Strategy Symposium (ISS), 10-13 January, we will be taking a deep-dive into the 2016 forecast and on the business drivers and will have a much better picture of the consensus outlook.
However, it is already quite clear that following this enormous wave of consolidation, the industry will look different and will offer new opportunities. Listening to SEMI’s members, I’ve heard that during this period of upheaval it’s absolutely critical to stay close to one’s customers – but more than that – to have access and ongoing direct dialogue with the customer’s customer … and customers’ customers’ customers.
In light of the cost of research and development, the magnitude of risks, and the speed of new consumer electronics adoption, SEMI members find that they need to intimately know emerging requirements two to three steps away in the supply chain, and may require rapid and innovative development from their own sub-suppliers to meet product delivery in time. In parallel, we see system integrators (electronics providers) staffing up with semiconductor processing engineers and equipment expertise, both for differentiation of their own products and for potential strategic vertical manufacturing.
2016 will see an acceleration of collaboration and interdependence across the extended supply chain. Next week, I’ll provide an update letter on SEMI’s activities with an overview of what SEMI is doing to meet the realities of a reshaped industry. SEMI’s role is evolving and more important than ever in helping the industry achieve together, what it cannot accomplish alone.
Transforming SEMI for the 2020 Industry
SEMI is adapting to this new reality by providing new forums for collaboration, developing new communities within the SEMI membership, and focusing action in Special Interest Groups. SEMI is concentrating more deeply than ever on providing its members with opportunities for growth and enabling members’ prosperity.
To put this in perspective, I’d like to update you on our SEMI 2020 vision and strategic plan and give you some insights into steps we’ve already taken and where we’re going to ensure SEMI is best serving its members today — and will be ready to serve the needs of our members in 2020.
SEMI International Board of Directors (BOD) Guidance
In July 2015, SEMI’s International BOD met to review SEMI’s 2020 plan. In addition to approving SEMI’s plan, the BOD provided specific follow-on guidance. First, here are SEMI’s mission, vision, and 2020 strategic focus areas.
- Mission — our focus for the next five years
- SEMI provides industry stewardship and engages our members to advance the interests of the global electronics supply chain.
- Vision — what we stand for
- SEMI promotes the development of the global electronics supply chain and positively influences the growth and prosperity of its members. SEMI advances the mutual business interests of its membership and promotes a free and open global marketplace.
- Members’ Growth — 2020 strategic focus
- SEMI enables member growth opportunities by evolving SEMI communities and building new communities across the global electronics supply chain via cooperation, partnerships, and integration.
- Members’ Prosperity — 2020 strategic focus
- SEMI enables members to prosper by building extended supply chain collaboration forums providing opportunities to increase value while optimizing the supply chain for SEMI members.
SEMI’s International BOD gave the following specific follow-on direction:
- Evolve SEMI to become more central to the extended electronics supply chain (figure below)
- Provide distinct value propositions for big and Small & Medium sized Enterprises (SME) members
- Increase depth and relevance of non-exposition products.
- Evolve SEMICON platforms
This direction is provided to enhance SEMI’s six basic activities:
SEMI 2015 Results
The number of SEMI Member companies increased in 2015 to more than 1,939. In 2015, worldwide SEMICON expositions hosted more than 4,255 exhibitors (up 6 percent year-over-year), 140,100 unique registered attendees, and over 216,475 total visitors (includes registered attendees and attending exhibitors). The regional SEMICON expositions continue to be the leading gatherings for the SEMI communities. As SEMI’s membership changes, so do the SEMICON shows. In 2015, program innovations and new segments were added and exposition venues were changed to reflect a changing and diverse SEMI Membership.
Additionally, selected key steps forward in 2015 included:
- FlexTech joined SEMI as SEMI’s first Strategic Association Partner
- SEMI Special Interest Groups — Chemical and Gases Manufacturers Group (CGMG), SEMI integrated Packaging and Test (SiPAT), Semiconductor Components, Instruments & Subsystems (SCIS), etc. — integrated broad areas of the supply chain
- SEMI (automation) Standards applicable to Smart Manufacturing, Industry 4.0
- Improved channels: new SEMI Global Update, new website, social media, infographics
- New products such as 200mm report, packaging report (2020 related)
- New programs such as SEMI European MEMS conference, IEPC Korea
- Redirected SEMI Foundation to widen scope on Workforce Development
- Growth in SEMICON expositions in China, Japan, Korea, SEA, and Taiwan
- ITA, Export Control, and Tax Credit legislation wins
- Leadership on rejecting potential GLB/BDO ban and leading industry through PFOS regulation
Expanding on the top two points, partnership with FlexTech and Smart Manufacturing, these are major milestones that both illustrate the SEMI 2020 activities and will develop over the next five years.
FlexTech Alliance has become SEMI’s first Strategic Association Partner. A guiding strategy for SEMI 2020 is to bring growth opportunities to SEMI members. By linking FlexTech to SEMI through a Special Interest Group (SIG) community, SEMI members gain access to an emerging area that combines ICs with novel disruptive manufacturing techniques. In turn, the FlexTech community gains access to SEMI’s global infrastructure and Standards platform to develop the community’s worldwide capability.
FlexTech Alliance is devoted to fostering the growth, profitability and success of the Flexible Hybrid Electronics (FHE) supply chain, and the many application areas enabled by this new class of electronic intelligence. FlexTech Alliance offers expanded collaboration between and among industry, academia, and research organizations for advancing flexible, printed electronics from R&D to commercialization.
SEMI is also moving forward quickly on Smart Manufacturing. Smart Manufacturing encompasses networked factory IoT devices and Industry 4.0 concepts such as and highly interoperable, self-diagnosing, and adaptive factories. SEMI member factories have been using Smart Manufacturing concepts well before the term “Industry 4.0” was developed. With more than 900 SEMI Standards developed and a majority of these addressing interoperability and automation, SEMI members have been pioneers in this area. SEMI has refocused its related automation standards under a Smart Manufacturing organizing principal and is beginning to engage other industries and Standards bodies to pursue the wider adoption of SEMI Standards and forestall other, less applicable standards, being mandated for SEMI member factories.
I hope this provides an overview of how SEMI is evolving to ready itself for 2020 and gives a flavor of some specific activities that are underway. We’ll continue to pursue SEMI 2020 strategies within the three pillars: re-energizing our base membership, building communities and collaboration, and evolving SEMI’s value propositions to the industry’s 2020 needs.
We understand the industry has changed and will continue to change and we want SEMI to remain central and relevant to our largest members, as well as the large population of SME members. We are grateful to serve the industry and to be entrusted to bring growth opportunities to our members, enable members’ prosperity, and harness the collective action of the membership to solve issues and remove barriers to collective success.
(This article orginally appeard in SEMI Global Update as a two-part article on January 5 and January 12, 2016.)