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How Will COVID-19 Affect GaAs Revenue?

by Eric Higham | May 04, 2020

COVID-19 emerged in China at the end of 2019 and the effect on global economies has been profound, but still unclear. Countries around the world have implemented varying degrees of lockdown for their populations, but we are really just starting to see the initial financial effects in the electronics industry, as public companies begin to report financials. The answer to the question of how COVID-19 will affect the silicon industry seems to be; it’s not clear! SEMI reports silicon wafer area shipments for the first quarter of 2020 edged up slightly, reversing a trend that held for the past 5 quarters. They caution that COVID-19 effects won’t be felt until late in the year. However, in a SEMI blog, one of their market researchers claims silicon wafer shipments will either go up slightly or go down slightly and there are viable explanations for both conclusions, so perhaps the takeaway is “slightly”. And no…I haven’t sold my soul (despite a definite lack of blogging) to the silicon devil, but I think looking at the uncertainty in the broader electronics market and the silicon juggernaut helps put developments in the compound semiconductor world into better perspective.

I recently published the “A First Look at the Effects of COVID-19 on GaAs Revenue” that takes a stab at what the RF GaAs revenue profile will look like out to 2025. The effects of the virus have been global, but the severity and response has been very specific to each individual country. This is important because we are all talking about supply chain disruptions, but this is also a very large demand disruption as unemployment rates skyrocket. This is particularly important for GaAs revenue, because it links so closely to developments in the smartphone market. The recently published Updated: Global Handset / Smartphone / Feature Phone Sales Forecast for 88 Countries : 2007 to 2025 from Strategy Analytics’ Devices group estimates a ~21% decline in smartphone shipments in 2020, but a relatively fast recovery.

With more than 50% of RF GaAs revenue coming from the handset market, a 21% decline in smartphone shipments is going to create a drag on GaAs revenue. So, it is very likely that after a very long period of growth in GaAs revenue, the market will see a second consecutive year of contraction. Based on this handset forecast and our internal models, GaAs could be in for a 11-12% decline in 2020.

However, COVID-19 is not affecting all GaAs applications equally; so, the situation for GaAs revenue may not be as dire as the decline in handset shipments portends. The smartphone situation will present an enormous headwind to GaAs revenue growth, there is no sugarcoating that , but our current device forecast shows a quick, sharp rebound. In addition, the global quarantine orders have placed a premium on wider deployment of high-speed broadband networks and connectivity. The increase in online ordering and delivery are creating an enormous demand spike for data center connectivity. Medical testing capabilities continue to be at the forefront of the COVID-19 battle, so that equipment is seeing more demand. Defense is not immune to supply chain disruptions, but because funding is pre-approved and the life cycles are much longer, the defense industry seems a bit better insulated.

While there are some applications that offer optimism for GaAs revenue, the drop in handset shipments will be too much to overcome, so revenue looks to decline again in 2020, but the silver lining in that dark cloud is that difficult times in the GaAs component industry should be short-lived. Ultimately, once the supply chain and demand return to normal, 5G networks and devices will be the engine driving future growth.

Of course, COVID-19 developments are very dynamic and something may happen tomorrow to change this analysis, but for the moment, my crystal ball is in focus and this is what it’s telling me. I’ll be keeping close tabs on these developments, so I’m happy to discuss the latest GaAs or compound semiconductor response to COVID-19 and how we can help you develop a strategy to deal with the pandemic.

Stay safe everyone!

  • Eric
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