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5 things the current semiconductor slowdown tells us about the global economy

A downturn in the semiconductor industry is never a good sign.
semiconductors
14 November 2019 •

The world runs on semiconductors. No longer confined to PCs and laptops, the chips built from semiconductor materials are now used everywhere.

From smart TVs and cars to farming and industrial equipment, our demand for more intelligent devices in our homes and workplaces has made semiconductors crucial across the global economy.

Our thirst for smarter, always-available applications is driving artificial intelligence, cloud, and other new technologies. And that, in turn, requires more powerful and plentiful chips.

When the semiconductor sector experiences a downturn, it is not a trend that businesses in other sectors can take lightly.

Recent industry figures paint a bleak picture for the sector. Global semiconductor revenue in the six months to June 2019 plummeted 14.5 percent in a year, according to the World Semiconductor Trade Statistics. That trend looks set to continue, with research firm Gartner forecasting a 9.6 percent drop in 2019 and data firm IHS Markit predicting the industry’s worst result in a decade.

So, what does the semiconductor downturn tell us about the rest of the global economy?

1. The high-tech sector is struggling for growth

Demand for the business and consumer devices that contain semiconductors is falling. Gartner predicts spending on data center systems will drop by 3.5 percent in 2019 — a big fall from the 15.7 percent expenditure growth last year, driven by the trend of enterprises shifting application software to the cloud.

In fact, much of the technology industry appears to be struggling to find growth. Total global IT spending is forecasted to remain flat in 2019 — at just 0.6 percent growth — after two relatively strong years: 5.1 percent growth in 2018 and 3.8 percent in 2017.

DHL GLOBAL TRADE BAROMETER – HIGH-TECH SECTOR SEP

The high technology sector’s trade growth outlook has also deteriorated sharply over the past year, according to the DHL Global Trade Barometer (GTB), a growth index that provides an early indicator of the trade outlook based on key import and export data.

The September 2019 results show that the industry is down in five of the seven key markets measured, with the exception of Germany and the UK. The most significant falls recorded over the past year were of the sector’s former high flyers, India and South Korea — their indices dropped to just 27 and 30 points respectively, indicating a slowing trade outlook.

2. Smartphone sales are down

Global market intelligence firm International Data Corporation (IDC) predicts shipments of PCs, laptops, and tablet devices will drop by 3 percent in 2019.

The long-term decline of the personal computing market is down to a range of factors, including many consumers’ preference for smartphones.

smartphone

However, even smartphone sales are now falling. A further decline of 2.5 percent is expected to hit smartphone sales in 2019, mainly as a result of lengthening replacement cycles and the ban on Huawei accessing technology from U.S. suppliers.

"If mobile phones don't provide significant new utility, efficiency or experiences, users won't upgrade them, and will consequently increase these devices' lifespans," said Gartner analyst Ranjit Atwal.

3. The automotive industry is in trouble

Automotive sales also have significant impact on the semiconductor industry. And according to Nina Turner, research manager for semiconductors at IDC: “The decline in automobile unit sales in 2018 lowered overall growth in automotive semiconductors.”

The downward trend looks certain to extend to 2019, where global vehicle sales is predicted to shrink by more than 4 million cars.

In the first two quarters of the year alone, global auto sales, according to Bloomberg Intelligence, were already down 6.5 percent and 7 percent from a year earlier.

The world’s largest market, China, has also seen auto sales fall for 12 consecutive months, due to “slowing economic growth, trade-related turmoil, and a weak consumer demand, exacerbated by newer and stricter emissions rules.”

4. Global trade is in the doldrums

With the growing use of semiconductors across many sectors, the current global economic and trade malaise has also hurt the industry.

The International Monetary Fund (IMF) has downgraded its forecasts for global growth for both 2019 and 2020 by 0.1 percent. This year’s expected result of 3.2 percent is the weakest growth rate for 10 years, amid uncertainty caused by “rising geopolitical tensions” such as the U.S.–China trade war and Brexit.

“Trade volume growth declined to around 0.5 percent year-on-year in the first quarter of 2019 after dropping below 2 percent in the fourth quarter of 2018,” according to the IMF, which cited Asia as the region where the slowdown was more significant.

DHL Global Trade Barometer_SEP_Global

The trade growth outlook shows little sign of improvement, according to the GTB.

The GTB’s world index dropped by 20 percent over the first half of 2019. However, the downward trend has slowed down significantly — the September index sits at 47 points after a huge loss of eight points in the previous quarter ending in June.

5. More industries are transforming

The longer-term outlook for semiconductors is more bullish, with revenues expected to recover in 2020 and grow at a steady 2 percent yearly until 2023.

New technologies seem to be helping. The proliferation of 5G networks and devices is generating new demand, which would likely ramp up smartphone sales next year.

A forecast by professional services firm PwC estimates a fivefold increase in the market for AI-related semiconductors by 2022. Meanwhile, autonomous vehicle-enabling technologies will drive three to four times more growth than the overall semiconductor market, according to IDC’s Turner.

The Internet of Things (IoT) is another promising growth area, as digital transformation continues to roll out across more industries and business functions. Smart devices, powered by semiconductor chips, are increasingly used for improving operations in key industries and even in the building of smart homes and smart cities of the future.

Amid the economic doom and gloom, the advancement of emerging technologies may very well be the stimulus to power the ailing semiconductor industry forward.

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The world runs on semiconductors. No longer confined to PCs and laptops, the chips built from semiconductor materials are now used everywhere.

From smart TVs and cars to farming and industrial equipment, our demand for more intelligent devices in our homes and workplaces has made semiconductors crucial across the global economy.

Our thirst for smarter, always-available applications is driving artificial intelligence, cloud, and other new technologies. And that, in turn, requires more powerful and plentiful chips.

When the semiconductor sector experiences a downturn, it is not a trend that businesses in other sectors can take lightly.

Recent industry figures paint a bleak picture for the sector. Global semiconductor revenue in the six months to June 2019 plummeted 14.5 percent in a year, according to the World Semiconductor Trade Statistics. That trend looks set to continue, with research firm Gartner forecasting a 9.6 percent drop in 2019 and data firm IHS Markit predicting the industry’s worst result in a decade.

So, what does the semiconductor downturn tell us about the rest of the global economy?

1. The high-tech sector is struggling for growth

Demand for the business and consumer devices that contain semiconductors is falling. Gartner predicts spending on data center systems will drop by 3.5 percent in 2019 — a big fall from the 15.7 percent expenditure growth last year, driven by the trend of enterprises shifting application software to the cloud.

In fact, much of the technology industry appears to be struggling to find growth. Total global IT spending is forecasted to remain flat in 2019 — at just 0.6 percent growth — after two relatively strong years: 5.1 percent growth in 2018 and 3.8 percent in 2017.

DHL GLOBAL TRADE BAROMETER – HIGH-TECH SECTOR SEP

The high technology sector’s trade growth outlook has also deteriorated sharply over the past year, according to the DHL Global Trade Barometer (GTB), a growth index that provides an early indicator of the trade outlook based on key import and export data.

The September 2019 results show that the industry is down in five of the seven key markets measured, with the exception of Germany and the UK. The most significant falls recorded over the past year were of the sector’s former high flyers, India and South Korea — their indices dropped to just 27 and 30 points respectively, indicating a slowing trade outlook.

2. Smartphone sales are down

Global market intelligence firm International Data Corporation (IDC) predicts shipments of PCs, laptops, and tablet devices will drop by 3 percent in 2019.

The long-term decline of the personal computing market is down to a range of factors, including many consumers’ preference for smartphones.

smartphone

However, even smartphone sales are now falling. A further decline of 2.5 percent is expected to hit smartphone sales in 2019, mainly as a result of lengthening replacement cycles and the ban on Huawei accessing technology from U.S. suppliers.

“If mobile phones don’t provide significant new utility, efficiency or experiences, users won’t upgrade them, and will consequently increase these devices’ lifespans,” said Gartner analyst Ranjit Atwal.

3. The automotive industry is in trouble

Automotive sales also have significant impact on the semiconductor industry. And according to Nina Turner, research manager for semiconductors at IDC: “The decline in automobile unit sales in 2018 lowered overall growth in automotive semiconductors.”

The downward trend looks certain to extend to 2019, where global vehicle sales is predicted to shrink by more than 4 million cars.

In the first two quarters of the year alone, global auto sales, according to Bloomberg Intelligence, were already down 6.5 percent and 7 percent from a year earlier.

The world’s largest market, China, has also seen auto sales fall for 12 consecutive months, due to “slowing economic growth, trade-related turmoil, and a weak consumer demand, exacerbated by newer and stricter emissions rules.”

4. Global trade is in the doldrums

With the growing use of semiconductors across many sectors, the current global economic and trade malaise has also hurt the industry.

The International Monetary Fund (IMF) has downgraded its forecasts for global growth for both 2019 and 2020 by 0.1 percent. This year’s expected result of 3.2 percent is the weakest growth rate for 10 years, amid uncertainty caused by “rising geopolitical tensions” such as the U.S.–China trade war and Brexit.

“Trade volume growth declined to around 0.5 percent year-on-year in the first quarter of 2019 after dropping below 2 percent in the fourth quarter of 2018,” according to the IMF, which cited Asia as the region where the slowdown was more significant.

DHL Global Trade Barometer_SEP_Global

The trade growth outlook shows little sign of improvement, according to the GTB.

The GTB’s world index dropped by 20 percent over the first half of 2019. However, the downward trend has slowed down significantly — the September index sits at 47 points after a huge loss of eight points in the previous quarter ending in June.

5. More industries are transforming

The longer-term outlook for semiconductors is more bullish, with revenues expected to recover in 2020 and grow at a steady 2 percent yearly until 2023.

New technologies seem to be helping. The proliferation of 5G networks and devices is generating new demand, which would likely ramp up smartphone sales next year.

A forecast by professional services firm PwC estimates a fivefold increase in the market for AI-related semiconductors by 2022. Meanwhile, autonomous vehicle-enabling technologies will drive three to four times more growth than the overall semiconductor market, according to IDC’s Turner.

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With the Internet of Things (IoT) connecting more devices every day, industries are being transformed with greater intelligence and efficiencies by the minute.

With manual work in a warehouse, there has always been a concern for safety and health of the workers. But what if you had devices that could monitor worker fatigue levels, caution them to rest, and alert them of safety hazards, so they steer clear of moving equipment and potential accidents?

What if you, as a warehouse manager, had access to all this information of your workers, including visibility of their locations in the warehouse — and in real time?

IoT makes this ideal scenario a reality, where employees work in a safe, conducive warehouse environment.

At DHL’s Advanced Regional Center in Singapore, for instance, wearable wireless sensors are used to assess worker fatigue levels, prompting a rest break when needed. Alerts are also sent when people were in proximity to moving equipment.

But IoT is doing more than just enabling safety in the warehouse. By connecting devices and people, it can also help companies save time and cost.

An increasingly connected world

The number of connected devices in 2017 is estimated to have outpaced the global population for the first time, clocking in at 8.4 billion. This figure is expected to climb to 20.4 billion by 2020, according to Gartner.

The research firm adds that Greater China, North America, and Western Europe are driving the use of connected devices with 67 percent of global IoT devices and installations found in these three regions.

In addition, applications customized to support certain industry segments including manufacturing and healthcare, will fuel the use of IoT among enterprises. These industry-specific devices are projected to hit 3.2 billion by 2020, with spending on such hardware equipment expected to reach US$3 trillion (€2.63 trillion) across all industry segments.

The logistics sector, in particular, has tapped IoT to improve supply chain visibility and monitor the whereabouts of goods. Most of such deployments have centered primarily on track-and-trace, such as GPS-tagging of shipments to manage the flow of these goods across the supply chain, as well as of trucks to track their locations and optimize routes.

Focus has since expanded to explore the use of IoT applications to better tap data captured by connected devices for predictive and prescriptive analytics, and in turn generate new business value and revenue.

Generating savings and efficiencies with actionable data

Applying IoT to logistics operations has the potential to improve asset management, delivery, and supply chains. Business processes can be automated, bypassing the need for manual interventions and, hence, improving quality and predictability.

The Port of Rotterdam in Netherlands, for example, is working with IBM IoT to create a digital twin of the port — identically mirroring all its resources, shipping movements, infrastructure, weather, geographical and water depth — with 100 percent accuracy.

This digital twin allows them to accurately test out scenarios and better understand how to improve efficiencies in their operations while maintaining safety standards.

In fact, “shipping companies and the port stand to save up to one hour in berthing time, which can amount to about US$80,000 in savings for ship operators, and enable more ships to dock at the port each day,” said IBM.

In Liuzhou, China, DHL inked a partnership with Huawei Technologies to implement a narrowband IoT application at an automotive site. Designed to facilitate and streamline yard management for inbound-to-manufacturing logistics, the proof-of-concept aimed to improve inbound processing time at the site.

Staff would typically allocate bays to different suppliers and manually schedule unloading. This sometimes resulted in inefficient allocation of loading bays, causing heavy congestion at certain bays while others remained underused.

The narrowband IoT application enables loading bay data to be collected in real-time, making the site’s availability visible. It also collects and analyzes data on the frequency of on-time deliveries as well as unloading efficiency, so it can optimize bay allocation and scheduling based on the data insights.

The application has improved unloading efficiency by 25 percent and slashed average job time from 2,330 to 1,750 seconds.

IoT benefits more than the business

Clearly, IoT can bring tremendous business benefits to the logistics industry. In fact, the technology is forecasted to generate up to US$1.9 trillion in additional value for the logistics community. Furthermore, as AI and machine learning systems depend on data to improve the accuracy of their analysis, IoT plays a critical role in collecting and feeding this data.

Ng Poh Khai, Senior Innovation Manager, Customer Solutions & Innovation (Asia Pacific) at DHL said: “By exploring the use of IoT across our warehousing, logistics, and transportation systems, we can analyze the data generated at every critical point in order to identify ways to better manage inventory, better predict system maintenance, and better monitor and control supply chains.

“More importantly, IoT can help us ensure the well-being of our employees as well as enhance our service delivery to customers. It strengthens our ability to ‘sense’ and improve our environment, turning data into valuable and actionable insights,” he noted.

Amid the digitization of supply chains, IoT is evolving the way data is collected and analyzed. This will change how people and systems work together and, ultimately, identify areas of improvements and best practices.

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With manual work in a warehouse, there has always been a concern for safety and health of the workers. But what if you had devices that could monitor worker fatigue levels, caution them to rest, and alert them of safety hazards, so they steer clear of moving equipment and potential accidents?

What if you, as a warehouse manager, had access to all this information of your workers, including visibility of their locations in the warehouse — and in real time?

IoT makes this ideal scenario a reality, where employees work in a safe, conducive warehouse environment.

At DHL’s Advanced Regional Center in Singapore, for instance, wearable wireless sensors are used to assess worker fatigue levels, prompting a rest break when needed. Alerts are also sent when people were in proximity to moving equipment.

But IoT is doing more than just enabling safety in the warehouse. By connecting devices and people, it can also help companies save time and cost.

An increasingly connected world

The number of connected devices in 2017 is estimated to have outpaced the global population for the first time, clocking in at 8.4 billion. This figure is expected to climb to 20.4 billion by 2020, according to Gartner.

The research firm adds that Greater China, North America, and Western Europe are driving the use of connected devices with 67 percent of global IoT devices and installations found in these three regions.

In addition, applications customized to support certain industry segments including manufacturing and healthcare, will fuel the use of IoT among enterprises. These industry-specific devices are projected to hit 3.2 billion by 2020, with spending on such hardware equipment expected to reach US$3 trillion (€2.63 trillion) across all industry segments.

The logistics sector, in particular, has tapped IoT to improve supply chain visibility and monitor the whereabouts of goods. Most of such deployments have centered primarily on track-and-trace, such as GPS-tagging of shipments to manage the flow of these goods across the supply chain, as well as of trucks to track their locations and optimize routes.

Focus has since expanded to explore the use of IoT applications to better tap data captured by connected devices for predictive and prescriptive analytics, and in turn generate new business value and revenue.

Generating savings and efficiencies with actionable data

Applying IoT to logistics operations has the potential to improve asset management, delivery, and supply chains. Business processes can be automated, bypassing the need for manual interventions and, hence, improving quality and predictability.

The Port of Rotterdam in Netherlands, for example, is working with IBM IoT to create a digital twin of the port — identically mirroring all its resources, shipping movements, infrastructure, weather, geographical and water depth — with 100 percent accuracy.

This digital twin allows them to accurately test out scenarios and better understand how to improve efficiencies in their operations while maintaining safety standards.

In fact, “shipping companies and the port stand to save up to one hour in berthing time, which can amount to about US$80,000 in savings for ship operators, and enable more ships to dock at the port each day,” said IBM.

In Liuzhou, China, DHL inked a partnership with Huawei Technologies to implement a narrowband IoT application at an automotive site. Designed to facilitate and streamline yard management for inbound-to-manufacturing logistics, the proof-of-concept aimed to improve inbound processing time at the site.

Staff would typically allocate bays to different suppliers and manually schedule unloading. This sometimes resulted in inefficient allocation of loading bays, causing heavy congestion at certain bays while others remained underused.

The narrowband IoT application enables loading bay data to be collected in real-time, making the site’s availability visible. It also collects and analyzes data on the frequency of on-time deliveries as well as unloading efficiency, so it can optimize bay allocation and scheduling based on the data insights.

The application has improved unloading efficiency by 25 percent and slashed average job time from 2,330 to 1,750 seconds.

IoT benefits more than the business

Clearly, IoT can bring tremendous business benefits to the logistics industry. In fact, the technology is forecasted to generate up to US$1.9 trillion in additional value for the logistics community. Furthermore, as AI and machine learning systems depend on data to improve the accuracy of their analysis, IoT plays a critical role in collecting and feeding this data.

Ng Poh Khai, Senior Innovation Manager, Customer Solutions & Innovation (Asia Pacific) at DHL said: “By exploring the use of IoT across our warehousing, logistics, and transportation systems, we can analyze the data generated at every critical point in order to identify ways to better manage inventory, better predict system maintenance, and better monitor and control supply chains.

“More importantly, IoT can help us ensure the well-being of our employees as well as enhance our service delivery to customers. It strengthens our ability to ‘sense’ and improve our environment, turning data into valuable and actionable insights,” he noted.

Amid the digitization of supply chains, IoT is evolving the way data is collected and analyzed. This will change how people and systems work together and, ultimately, identify areas of improvements and best practices.

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The Internet of Things (IoT) is another promising growth area, as digital transformation continues to roll out across more industries and business functions. Smart devices, powered by semiconductor chips, are increasingly used for improving operations in key industries and even in the building of smart homes and smart cities of the future.

Amid the economic doom and gloom, the advancement of emerging technologies may very well be the stimulus to power the ailing semiconductor industry forward.

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