Close Look at the Electronics Industry

Interview with Tricia Koh

Q1: Hello Tricia, we are now two years into the Covid-19 pandemic and have seen ups and downs in different industries over the course. Which industry are you seeing promising growth going into 2022?

A: The electronics industry has been the clear-cut winner of the Covid-19 pandemic due to unprecedented demand from across the world. Volume growth has been driven by the unusually strong demand for consumer electronics such as computers/personal laptops, smartphones, audio/video equipment etc; secondly, price hikes due to supply and demand becoming increasingly imbalanced; and thirdly, improving product mix due to the introduction of the higher priced, new generation chips using the 5nm manufacturing node.


Q2: Semiconductors have been a hot topic particularly in recent years. Why is that?

A: This is because semiconductors are by far the largest component and the bellwether of the wider electronics market. Typically speaking, if semiconductors do well, the wider electronics industry is also doing well.

Evidently, ever since coming out from its worst recession in 2019 where sales were down 19% year-on-year, the semiconductor segment has been running on full throttle where 2021 global sales are likely to grow by 26% year-on-year reaching historic high of US$553bn.


Q3: With the semiconductor sector is going well and all, how do you see the industry is trending?

A: Of course, nothing grows forever, especially in semiconductor’s case where its growth cycle usually runs for 4-5 years followed by a period of adjustment that lasts for 12 months on average. We expect final demand will start to normalize while new production capacities begin to come online in an accelerating manner. Nonetheless, we still expect the current growth momentum will fuel global sales to grow by another 9% in 2022 and to cross the US$600bn mark for the first time in history.


Q4: Despite growth is shifting down a gear, what are the other risks in the electronics industry?

A: We expect the risk environment to be challenging, as the robust growth in hardware sales over the past two years had us believe that demand normalization could hit the industry harder than expected. Meanwhile, demand for semiconductor is also subject to if the electronics supply chain will endure another prolonged period of manufacturing pause just as it did in Q2 2020.

On the geopolitical front, the US-China Tech Cold War is not on the industry’s side, as the new US administration has not lifted any restrictions that prevent Chinese companies to acquire US semiconductor technologies, which put a drag on industry growth. Lastly, the increasing frequency of adverse climatic events could put the industry at risk as its profitability is relied on optimal capacity utilization.


Q5: What is your take on insolvencies in the electronics sector?

A: Ever since Tsinghua Unigroup, a Chinese state-owned semiconductor group faced debt issues and possibility of bankruptcy, insolvencies in the electronics sector have been in the spotlight. Since 2015, there have been about 100 significant insolvency cases in the electronics sector with a total turnover of US$32bn. Over the same period, Asia Pacific has accounted for 59% of global insolvencies in the electronics sector while China and Japan are origins of roughly two-thirds of those cases.

The upward trend in sector insolvencies can be explained by the fast-paced expansion of the industry, its capital and R&D intensive nature as well as fierce competition across many product segments. Moreover, the future of the electronics industry could be clouded by rising insolvency risk as the US tightens its monetary policy while China continues to try to dominate the technology space. Hence, as always, we advise decision makers to review and strategize their risk mitigating measures as they venture into the post-pandemic scene.


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