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August 17, 2020

Semiconductors Outperforming Most Industries – but Watch Second Half

Things are picking up.

PMIs Have Generally Recovered

Purchasing managers indices indicated July manufacturing increases in most key countries with only South Korea and Japan having PMIs still in contraction territory (Chart 1). The Global PMI recovered sharply (Chart 2), reaching 50.3 in July.

Service Sector Still Fighting Pandemic

The manufacturing sector is recovering but the service sector is still struggling, hit hard by pandemic-driven travel curtailments, restaurant closures and restrained consumer spending.

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Second Quarter was Tough

The second quarter was very difficult for many suppliers both in the United States and worldwide. Second-quarter company financial reports tell the story. Based on preliminary (but almost complete) compilations of 2Q’20 vs. 2Q’19 financial reports, an analysis of revenue growth by sector of the U.S. (Chart 3) and world (Chart 4) electronic supply chains produced some clear conclusions.

  • Globally most electronic equipment sectors were hit very hard.
  • Automotive and aerospace manufacturers really suffered.
  • Semiconductor chips and capital equipment outperformed most other manufacturing sectors.

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Third-Quarter Challenges

As we enter the third quarter of 2020 different dynamics are in play.

  • We have entered the fall busy season driven by consumer electronics buildups in Asia.
  • Political wrangling is intense especially in the United States.
  • The COVID-19 pandemic still looms and the economic fallout could be massive.

Seasonality is Big Factor

That said, world electronic equipment output (driven by China) showed a strong seasonal upturn in July with further growth likely through late autumn (Chart 5).


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On the Bright Side … but with Cautions

So far the semiconductor industry is outperforming most other manufacturing sectors. Semiconductor capital equipment shipments were up 23% globally in 2Q’20 vs. 2Q’19 (Chart 6) and semiconductor chip 3/12 growth is still in positive territory (Chart 7).

However there are signs of slowing. World semiconductor shipments were sequentially flat from May to June and the Taiwan-based wafer foundries reported a combined July sales decline (Chart 8).

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The semiconductor industry continues to perform well but there are many challenges ahead for the world economy throughout 2020. Keep watching the monthly numbers!

Walt Custer of Custer Consulting Group is an analyst focused on the global electronics industry. He can be reached at