Italy

Linx Consulting and Hilltop Economics continue to monitor how the global economy impacts the electronic materials supply chain. Amidst the recent economic and revenue results releases, we have generated a series of potential scenarios for the next few years. These scenarios are based around sales of silicon wafers expressed in millions of square inches (MSI). Our work develops a multiyear forecast from the historic record of the SEMI-reported MSI demand by developing an econometric relationship with underlying demand drivers. Using this methodology, Linx Consulting and Hilltop Economics have introduced the following three silicon demand forecast scenarios: V-shaped global recession consistent with severe COVID-19 impact followed by a sharp economic rebound. Probability of approximately 40%. V-shaped global recession but with business and consumer behavior differing from the past recession in that there is much more aggressive spending on technology goods that softens the impact for semiconductors in 2020. Probability of approximately 25%. An extended COVID-19 impact developing into a U- or L-shaped global recession with an economic rebound delayed for several years. Probability of approximately 35%. In the few months since coronavirus hit the world, the economic prognosis for all major economies has worsened dramatically, although forecasts remain speculative given the rapid rate of change in the political and economic environment. The forecast changes in GDP since February 2020 of the G7 nations vary from -5.9% for Japan to -10.2% for Italy. These changes are closely linked to unprecedented declines in employment, consumer demand and industrial investment – all key drivers for wafer area demand. This leads us to believe there will be a significant reduction in wafer demand as these economic factors feed through the supply chain.Other leading indicators show dramatic drops in the global and regional economies taking effect at an unprecedented pace. These indicators have a loose predictive relationship for silicon wafer consumption and portend a rapid drop in demand.The demand picture for the semiconductor supply chain (be it wafers, materials, consumables or devices) is thus gloomy, and our models are currently showing Q2 to Q3 2020 reductions in MSI demand of between -11% and -28% depending on the scenario.In marked contrast to this depressing economic picture, the indications from the end-to-end semiconductor supply chain continue to be much more positive. Demand for silicon reported by SEMI increased in Q1 2020 by close to 3% from Q4 2019, while results from materials supply companies vary from slightly negative to record-breaking growth rates through the first three to four months of 2020. Added to this, reported revenues from WSTS for Q1 2020 ticked up 6.2% versus the prior year and the three large foundries in Taiwan and China showed continued growth of Q1 wafer area shipments and a 32.3% growth versus Q1 2019.Revenue and demand reports from leading device manufacturers remain on trend from 2019 with no indication of a precipitous change. Anecdotal reports of strong technology equipment demand to support people working from home and demand for medical devices in response to the pandemic can be substantiated somewhat by demand data although not convincingly.Reports from materials supply companies indicate that factories continue to be fully utilized, having been designated essential businesses, and that safety measures implemented against infection are largely effective.There are some indications of caution, however. The major public silicon wafer suppliers saw a 4% drop in revenues in Q1 over Q4, despite the reported strength in silicon area shipments from SEMI, indicating either ASP declines or some inventory effects.We are advising clients supplying materials into the wafer fabs and packaging supply chains to develop contingency plans for a sharp decline in product demand of as much as 28%, which may bounce back rapidly to 2019 levels or higher in early 2021. However, companies should also be vigilant of a slower than hoped for return to previous activity levels if the effects of the pandemic continue for an extended period.For further information please contact Mark Thirsk at +1 774-245-0959 or on [email protected] in engaging with the electronic materials supply chain? The Electronic Materials Group (EMG) is a SEMI technology community representing SEMI member companies that provide substrates, polymers, metals, organic and inorganic materials, chemicals, and gases developed for electronics manufacturing. Linx Consulting is a longtime member and supporter of the SEMI Electronic Materials Group.Mark Thirsk is managing partner at Linx Consulting. Duncan Meldrum is president of Hilltop Economics.

In an important step toward resuming business as usual in Japan, Prime Minister Shinzo Abe on May 14 lifted the state of emergency originally scheduled to expire at the end of May for 39 of Japan’s 47 prefectures, marking “the real beginning of our efforts toward a new normal in the era of the coronavirus” as new cases continue to decline. But with Tokyo, Osaka and six other prefectures still under the state of emergency, Abe urged citizens to remain cautious as the nation and world continue to confront the COVID-19 threat. Among criteria the remaining prefectures must meet for a state of emergency suspension is a reduction in new infections to no more than 0.5 cases weekly for every 100,000 citizens. The eight prefectures account for nearly half of Japan’s population and GDP, with Tokyo and Osaka the two largest urban areas in the island nation. Japan expects to contain its economic losses to 38 trillion yen, 15 percent less than the 45 trillion yen hit originally projected. The Japan government has planned a May 21 progress review[1] in the eight prefectures, a timeline that Abe said could lead to the lifting of the state of emergency before the original cutoff at the end of the month, a move that would help stem the drain on the domestic economy.Strict Immigration Controls Restricts International Travel to and from Japan by Supplier EngineersAs I reported on April 21, the Japan Foreign Ministry on March 31 raised its travel advisory to level 3 for 49 regions around the world including the U.S., prohibiting travel from Japan for any purpose. SEMI Japan is urging government officials to exempt Japanese supply chain engineers from the travel ban to allow visits to semiconductor manufacturing facilities in those regions in order to install, start up and service equipment.Starting May 14, Japan blocked immigration of foreign nationals and permanent residents from 100 countries and regions worldwide, a ban applying to anyone who spent time in their home region within 14 days of their planned arrival in Japan. The areas include China, Singapore, South Korea, and Taiwan in Asia; Canada and the U.S.; and Germany, France, Italy, Netherlands, Switzerland and the U.K. in Europe. For the complete list, see the Japan Ministry of Justice’s website.Japan’s immigration ban mirrors restrictions now in place in many other regions around the world. The immigration controls are well-intended – to restrict the spread of COVID-19 – but hamstring the global microelectronics supply chain. For example, the curbs bar engineers from international travel to install new tools and software in fabs. SEMI Japan has stressed the potential chip industry impacts of the ban in ongoing talks with the Ministry of Economy, Trade and Industry and is facilitating discussions between government representatives and SEMI members to help clear the way for travel by critical supply chain workers to Japan. SEMI Supports Members with COVID-19 ResourcesSEMI international headquarters and regional offices are here to help you, our members. For more information on our webinars, surveys, best practices and other information designed to help you meet the challenges of the pandemic, please visit the SEMI Coronavirus Updates Resources page.[1] The May 21 review found three prefectures in western area – Hyogo, Kyoto and Osaka – met the criteria to lift the state of the emergency. Four other prefectures – Chiba, Hokkaido, Saitama and Tokyo – remain under the emergency order that will be reviewed again as early as May 25.Jim Hamajima is president of SEMI Japan.

In the past 3 months, silicon wafer shipments leveled off and the YoY growth rate had started to rebound, SEMI reported in Silicon Wafer Market Monitor, a new quarterly report that tracks wafer shipment dynamics including historical shipments, supply & demand shifts, and pricing trends & forecasts.