Leadership

How can the semiconductor industry bounce back in 2021?

In many ways, the COVID-19 pandemic has been a crisis and an opportunity. Industries, individuals, and nations have had to make profound changes to cope with the new normal. The adoption of technology-driven by 5G, the gig economy, the Internet of Things (IoT), cloud computing, and AI has accelerated at an exponential pace. 

As the world increases its reliance on technology, an article by the Economic Times highlights that the semiconductor industry is finding it difficult to meet the demand from various industries like healthcare, mobile, consumer electronics, and other IT related industries. Like other industries, the semiconductor  industry too will have to undergo a seismic shift to adjust to the new normal. Let’s delve deeper into what these changes entail. 

Building Strategic Resilience

An article by Forbes sheds light on the steps that the semiconductor industry would have to take in the new normal. Business models of the semiconductor industry would have to undergo a paradigm shift:  Changing capital expenditures, R&D strategies, supply-chain blueprints, product portfolios, and even the nature of mergers and acquisitions. The biggest challenge for the semiconductor industry would be to build business models around looming uncertainties. 

While this process may seem daunting, the first step would be to establish a solid baseline for the semiconductor company in question.  Semiconductor companies already have the information to create a baseline without complications. First, it is imperative to create a definition for their core business model while taking into account the strengths in terms of capacity and capability. Following the first step, an assessment of the financial taking into account the pandemic is necessary: This includes an analysis of the current liquidity and cash flow – which most companies have already assessed- and the impact of interventions, including a scrutiny of the EBIT (Earnings before interest and taxes) margins. 

The next logical step is to assess their current market position: Taking into account the traditional market position and current market share? Has the perception of the company changed in the eyes of its competitors and customers? How does the current scenario affect future prospects?

After conducting a comprehensive analysis by following the aforementioned steps, semiconductor companies will have a better idea about their strengths and potential challenges that may arise in the near future.  

The business models they build must also account for: Potential recovery scenarios, changing demand patterns, supply-chain disruptions, long -term impact of the pandemic on the market trends and demand.

The road ahead

As per Forbes, recovery scenarios indicate that most semiconductor segments shall experience recovery in 2021. These are the trends that shall impact the recovery of the semiconductor industry in 2021.

  • Personal computer and desktop market: Since most people have purchased electronics for their work-in-home requirements in 2020, a decline is expected in 2021.  The performance gap for specific components will increase in 2021 as the semiconductor industry continues to ramp up technological advancements. Enterprises too are expected to cut down investments in pcs, with a large number of people working-from-home, and the need to cut down on expenditure due to the COVID-19 impact.
  • Automotive market: In a best case scenario, the automotive segment sees year-on-year growth of 28 to 36 percent in 2021. The optimistic estimates are based on the prognosis that the government shall offer incentives to aid automotive purchases in a bid to provide a boost to the automotive segment. If economic recovery is delayed, then automotive growth will be in th1 to 5 percent range due to dismal market conditions and if governments do not offer incentives. The latest news from the Economic Times highlights that while automotive sales have bounced back in India, there is a shortage of semiconductors for automobiles due to unprecedented demand.
  • Wired communication: This segment is  expected  to beat pre-COVID-19 forecasts in 2021.  The delayed recovery is set to act as a catalyst as homeschooling and remote-work shall increase the use of wired communications. 2021 is also the year where 5G technologies are likely to be available in most countries. The move to cloud-computing from on-site enterprise shall also accelerate the demand for wired communications further.

Much like in the case of downturns in the past, the need for strategic planning has become imperative. Companies that take a strategic approach may successfully be able to turn the situation around in their favor. They may even be able find new opportunities and niches from the crisis. In time, companies that recover quickly may even be able to position themselves as market leaders as the status quo changes.

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