According to the latest investigations by TrendForce, if the COVID-19 pandemic were to cause a break in the semiconductor supply chain, the industry would then be confronted with operational difficulties; the pandemic-induced decline in commercial and social activities may also potentially push back or even lower the traditional strong seasonality, thus affecting the foundry industry’s magnitude of revenue growth in 2020. Prior to the onset of COVID-19, foundries had originally forecasted a double-digit revenue growth YoY. However, given the deferred schedule of disease containment and the uncertain recovery time for market demand, TrendForce is forecasting a 5%-9% single-digit YoY growth in foundry revenue this year, with 6.8% being the median.
An analysis of wafer start orders placed at various foundries in 1H20 shows the following situations: Foundry clients refrained from large-scale cutbacks in orders, as these clients took into account the possibility of rebounding demand in the market after the pandemic’s eventual slowdown and aimed to avoid component shortages. In addition, foundry clients’ stock-up demand from 4Q19 was able to sustain the industry’s 1Q20 revenue. On the other hand, TrendForce expects the pandemic to have a somewhat noticeable effect on foundry orders in 2Q20 compared to 1Q20. For instance, orders for certain consumer electronics may be adjusted, while the demand for chips used in telework and medical applications, which are critical functions amidst the pandemic, is expected to undergo some degree of growth. Therefore, despite adjustments to foundry orders in 2Q20, the magnitude of these adjustments will not be significant. As well, 2Q19 was a relatively low base period in terms of foundry revenue; even if foundries were to see QoQ decreases in 2Q20 revenue, the low base period in 2Q19 means a YoY increase remains likely.
Nevertheless, although certain chip orders in 2Q20 may be included in 3Q20 revenue after the chips have been produced, these orders are projected to contribute to 3Q20 revenue shares to a limited extent only. Also, given the delays in pandemic containment measures and uncertainty regarding demand ramp-up, foundry clients may begin evaluating the possibility of reducing their orders by a relatively large amount, in an effort to avoid excess inventory. This potential reduction may subsequently postpone or lower the industry’s traditional strong seasonality, in turn impacting the foundry industry’s 2H20 revenue.
In terms of market demand, the current pandemic situation means the public will almost certainly possess reduced purchasing power. In response, foundries are turning elsewhere and looking for mid- to long-term demand drivers that can support the industry’s momentum, such as 5G infrastructure construction, servers and data centers for telecommunications, and IoT for industrial automation. However, the demand from these mid- to long-term applications still falls short of the demand share from the potentially waning consumer market. Therefore, depending on the severity of COVID-19’s impact on the supply chain and on the consumer market, foundries will likely need to remain agile in adjusting their operational strategies and revenue forecasts.
Taking into account the possibility of deferred or dwindling seasonality and assuming that the pandemic is unlikely to be brought under control in 2H20, TrendForce’s outlook on foundry revenue in 2020 remains conservative, with future developments depending on the progress of pandemic containment and the recovery time of the consumer market.