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Market analysis

The Semiconductors subsector reported year-over-year revenue growth of 4.7% and sequential revenue growth of 8.6% in Q2 2016. Growth was led by Applied Materials, which reported revenue growth of 13% year over year and 15% quarter over quarter. Out of the five companies tracked, Intel was the only company to report a sequential decline, a marginal 1%. 

Global silicon wafer area shipments in Q2 2016 increased 7% quarter over quarter, reaching 2,706 million square inches from 2,538 million square inches in Q1 2015. Year over year, Q2 2016 shipments were flat compared to the 2,702 million square inches in Q2 2015. Overall, Q2 2016 shipments are at their highest recorded quarterly level.1

In line with the upbeat silicon wafer market, global semiconductor capital spending is projected to decline just 0.7% in 2016 as opposed to a previous forecast of a 2% drop. Macroeconomic instability, excess inventories and weak demand have driven semiconductor device manufacturers to cut production volumes. However, improved demand in Q2 2016 is expected to slow the decline in the market.2 The big three chipmakers—Intel, Samsung and TSMC—are likely to spend US$20 billion towards capital expenditures, representing a 90% increase from Q1 2016.3

Despite the positive cues, the Semiconductors subsector continues to face stiff challenges. The impact of Brexit is yet to be seen, which may cause semiconductor inventory levels to rise in the third and fourth quarters.2 Also, according to some estimates, worldwide semiconductor revenue is likely to fall 2.3% to US$324 billion, affected by an economic pause in China and emerging markets and a softening of the overall outlook in the US.4

In company news, Applied Materials, Inc reported net sales of US$2.8 billion in Q2 2016, up 15% sequentially and 13% year over year. New orders were US$3.7 billion, up 6% sequentially and 26% year over year. The backlog of US$5.0 billion was up 19% sequentially and 60% year over year. The company recorded a gross margin of 42%, an operating margin of 21%, and net income of US$505 million or US$0.46 per diluted share. Applied Materials generated US$981 million in cash from operations, paid dividends of US$108 million and used US$196 million to repurchase 9 million shares of common stock at an average price of US$21.88.

Effective Q2 2016, Applied Materials has expanded its Display segment to include roll-to-roll web coating systems (previously in Energy and Environmental Solutions) and display upgrade equipment (previously in Applied Global Services). The Display segment is now named Display and Adjacent Markets. The company no longer reports Energy and Environmental Solutions as a segment and its solar business is now included in Corporate and Other. The Silicon Systems segment is now named Semiconductor Systems. Applied Global Services continues to include 200-millimeter semiconductor equipment sales.

1., July 2016
2., July 2016
3., August 2016
4., May 2016