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Market analysis

The semiconductor subsector declined on both a year-over-year and a quarter-over-quarter basis. Across the representative group of companies, results were mixed, with Applied Materials and TSMC reporting year-over-year growth, while Intel, Texas Instruments and Qualcomm reported year-over-year declines. Sequentially, Intel and Applied Materials reported growth; Texas Instruments was flat; and TSMC and Qualcomm reported declines.

Global sales of semiconductors reached US$84.0bn during Q2 2015, an increase of 1.0% over the previous quarter and 2.0% compared to the second quarter of 2014. The market has now grown on a year-over-year basis for 26 consecutive months. Worldwide sales for the month of June 2015 reached US$28.0bn, a year-over-year growth of 2.0% against US$27.4bn in June 2014 but a sequential decline of 0.4% against US$28.1bn in May 2015. Year-to-date sales during the first half of 2015 were 3.9% higher compared to the same period in 2014.1

Regionally, sales were up quarter over quarter in China (+7.8%), the Americas (+5.6%) and Asia-Pacific/All Other (+5.2%). In contrast, sales fell in Europe (-11.5%) and Japan (-13.6%). Sequentially, sales were up slightly in Japan (+1.0%) and China (+0.6%), but down somewhat in Asia-Pacific/All Other (-0.6%), the Americas (-1.6%) and Europe (-1.7%). Currency devaluation against the USD has impacted sales figures in Europe and Japan.1

North America-based manufacturers of semiconductor equipment posted US$1.51bn in bookings worldwide in Q2 2015. This is 8.1% higher than US$1.39bn posted in Q1 2015 and 3.5% higher than US$1.46bn posted in Q2 2014. The manufacturers also reported US$1.54bn in billings worldwide in Q2 2015. The billings figure is 21.8% higher than US$1.27bn posted in Q1 2015 and 16.2% higher than US$1.33bn posted in June 2014. Overall, the book-to-bill ratio stood at 0.98. This implies that US$98 worth of orders were received for every US$100 of product billed for the quarter.2

Worldwide semiconductor capital spending is projected to grow 2.5% in 2015 to reach US$66.1bn. This is down from an originally projected growth of 4.1%. Continued weakness in the Euro and Japanese Yen have created major weaknesses in the overall equipment market. With over half of all equipment being produced by either Japanese or European suppliers, the weakness in these currencies has been the primary factor in reducing the overall outlook for 2015. Over the longer term, growth is expected to be modest throughout the semiconductor cycle, with a pause in the equipment market growth in 2016 as DRAM fabs go through a typical cyclical downturn.3

Worldwide, memory capital spending is expected to grow by 3.2% in 2015. This is a downward revision from the 10.2% growth previously expected. Lower than expected spending announcements by major manufacturers reflect the fact that major equipment types are cheaper due to weaknesses in exchange rates. Memory manufacturers currently enjoy a strong chip pricing environment which sets the stage for continued spending growth through 2015. However, an anticipated oversupply in DRAM in 2016 will lead to a 13.6% decrease in worldwide memory spending. Wafer-level equipment spending is expected to grow by a modest 0.1% in 2015, as manufacturers pull back on new fab construction and concentrate on ramping up new capacity.3

Worldwide silicon wafer area shipments recorded quarterly growth for the second consecutive quarter. Total shipments reached 2,702 million square inches during the second quarter 0f 2015, a 2.5% increase from the 2,637 million square inches shipped during the previous quarter, resulting in a new quarterly volume shipment record. Year over year, total area shipments for the quarter are 4.4% higher than Q2 2014 shipments. First half 2015 shipments totaled 5,339 million square inches, 7.8% higher than 4,951 million square inches in the first half of 2014.4

In company news, Intel announced that it would acquire Altera for US$54 per share in an all-cash transaction valued at approximately US$16.7bn. The acquisition will couple Intel’s products and manufacturing process with Altera’s field-programmable gate array (FPGA) technology. The combination is expected to enable new classes of products in the data center and IoT market segments.5 Intel reported second quarter revenue of US$13.2bn, operating income of US$2.9bn, net income of $2.7bn and EPS of US$0.55. The company’s revenue showed a year-over-year decline of 4.6% but a sequential gain of 3.2%. The year-over-year decline was driven by lower Client Computing Group (CCG) unit sales, primarily desktop and notebook platforms, partially offset by higher Data Center Group (DCG) platform revenue and Non-Volatile Memory Solutions Group revenue. Intel’s net income showed a year-over-year decline of 3.2% but a sequential gain of 35.8%. The sequential gain is primarily due to higher revenue, improved gross margin, gains on equity investments and lower taxes. In Q2 2015, Intel’s management approved and commenced implementation of restructuring actions primarily targeted at workforce reductions.

Qualcomm reported Q2 2015 revenue of US$5.8bn, a 14.3% year-over-year decline. The Equipment and Services segment posted six consecutive months of decline, with a second quarter year-over-year decline amounting to US$1.1bn. Total cost as a percentage of total sales increased by 9.3%. Qualcomm investment income also fell to US$163mn, compared to US$422mn in Q1 2014. In July Qualcomm announced a strategic realignment plan designed to improve execution, enhance financial performance and drive profitable growth.

TSMC posted revenue of NT$205.4bn, net income of NT$79.4bn and diluted earnings per share of NT$3.06 (US$0.50 per ADR unit) for the second quarter ended 30 June 2015. Year over year, second quarter revenue increased 12.2%, while net income and diluted EPS both increased 33.0%. Compared to the first quarter of 2015, the second quarter results represent a 7.5% decrease in revenue, and a 0.5% increase in net income. In terms of USD, second quarter revenue decreased 5.4% from the previous quarter and increased 9.6% year over year. Shipments of 20-nanometer process technology accounted for 20% of total wafer revenues, while 28-nanometer accounted for 27% of total wafer revenues., Aug 2015

2EMSNow,  Jul 2015

3Gartner, Jul 2015

4I-Connect007, Aug 2015

5Intel, Jun 2015

6ZDNet, Aug 2015