Market Watch

Industrial Semiconductors Hiccup After Market Slows Down

Year-end revenue is adjusted down in the face of bumpy global economics

November 16, 2012

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The semiconductor market for industrial electronics faces lower revenue by the end of 2012 after expected growth among key chip suppliers failed to materialize earlier this year, according to an IHS iSuppli Industrial Electronics market tracker report from information and analytics provider IHS.

Revenue for industrial semiconductors—used in a wide array of application markets from home automation to aeronautics and military purposes—are projected to finish the year at $31.4 billion. While overall revenue remains slightly up from $30.5 billion in 2011, this year’s meager 3 percent uptick contrasts greatly with the solid 9 percent increase of last year and the exuberant surge of 35 percent in 2010 immediately after the recession.

The incremental growth of 2012 will also be the slowest compared to the next four years ahead, when expansion will range from 7 to 12 percent. Revenue is forecast to reach $44.8 billion by 2016. 

Overall, chip revenue had to be dialed back after economic headwinds got stronger in the second quarter, affecting several top semiconductor suppliers and original equipment manufacturers of industrial electronics. And when hoped-for growth did not pan out as expected and sales eventually came out lower, the market was downgraded to reflect the changed circumstances. 

Among the companies affected by the downturn in industrial semiconductors are Texas Instruments, Analog Devices Inc., Infineon Technologies, Atmel, Fuji Electric and Linear Technology. Manufacturers that have lowered their 2012 outlook because of weaker orders include Danaher, Siemens, Bombardier, Agilent, Vestas and Johnson Control.

Uses of industrial electronics—and the star performers and markets so far

Industrial semiconductors are used in many markets and applications. In energy generation and distribution, for instance, the chips are employed in wind turbines for renewable power, in inverters for photovoltaic solar energy, as well as in conventional oil and gas automation machinery. The semiconductors play an important role in military and civil aerospace, via applications in missiles and munitions, homeland security, satellites and avionics.

Other areas where industrial semiconductors are used include building and home control, covering security systems, lighting, smart meters and climate-control devices like air conditioners; medical electronics, including medical instruments, medical imaging and diagnostics; manufacturing and process automation, embracing motors and similar devices; and the test and measurement segment for a range of instruments, such as oscilloscopes and analog testers.

The one segment that seemed to have remained untouched this year was the robust light-emitting diode (LED) market, thanks to the LED lighting boom that has taken hold in many parts of the world. Second-quarter LED sales for Philips climbed 37 percent from year-ago levels, and other LED lamp suppliers like Cree, LG Innotek and Samsung LED also enjoyed solid second-quarter results.

There were other manufacturers that performed well during the period, scattered throughout various segments. Among them were Honeywell with 8 percent growth, driven by commercial avionics; General Electric with an industrial sales increase in the double digits, on the strength of a 27 percent rise in transportation; and Alstom, ABB, Delta and Mindray in other industrial sales segments.

Still, global economic concerns continue to trouble the industrial electronics industry as a whole. The financial worries of the euro zone, along with slower expansion in China and the ongoing high unemployment rate in the United States, threaten to derail any growth anticipated in the future, especially if markets take a turn for the worse.

As a result, manufacturers in the space have issued a cautionary warning for the short term amid the generally lowered outlook for the year, even though industry players remain hopeful that improved conditions could be on their way.

Read More >> Industrial Semiconductors Bumpy Road to Recovery

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