Growth drivers shifting to emerging economies

The advanced economies are expected to provide the growth acceleration in 2015. The United States, the largest economy accounting for about 23% of global GDP, is the largest contributor to the 2015 acceleration with GDP growth moving from 2.4% in 2014 to 3.1% in 2015 - accelerating 0.7 points. The Euro Area countries combined are the second largest economy and the second largest contributor to the global acceleration. Japan's recovery from a 0.1% decline in 2014 to 1.1% growth in 2015 is the third major factor in accelerating GDP growth.

The emerging/developing economies as a whole are expected to show deceleration of 0.3 points, from 4.6% in 2014 to 4.3% in 2015. However, these same countries drive the acceleration of global GDP growth in 2016 with 0.4 points of acceleration. Russia is in a major recession in 2015 with a forecast GDP decline of 3.8%, but begins to recover in 2016 with a 1.1% decline. Thus Russia contributes to global GDP acceleration in 2016 by being less of a drag on the economy than in 2015. South America shows a similar effect, led by Brazil and Argentina.

China has been a major driver of global economic growth for several years. Although China's GDP is still expected to grow at almost twice the global rate, growth is projected to slow from 7.4% in 2014 to 6.8% in 2015 and 6.3% in 2016. India's GDP growth is forecast to accelerate from 7.2% in 2014 to 7.5% in 2015 and hold at 7.5% in 2016. Thus India will replace China as the fastest growing major economy. The ASEAN-5 countries (Indonesia, Malaysia, Philippines, Thailand and Vietnam), the Middle East & Africa and Mexico also contribute to global GDP acceleration.

The overall message from the table is the advanced economies have recovered from slow growth in 2014 to close to long term growth rates in 2015 and 2016. The emerging/developing economies are still growing faster than the advanced economies, but growth leadership is shifting from China to India and Southeast Asia.

What is the impact on the electronics and semiconductor markets of these trends? The May 2015 smartphone forecast from market research firm GfK shows near term growth will depend on emerging regions, excluding China. Global smartphone unit growth is projected to slow to 10% in 2015 from 23% in 2014. China, a major growth driver and the largest single market for smartphones, is expected to show a 3% decline in 2015. The developed economies, North America, Europe and developed Asia/Pacific (APAC), show growth slowing from 18% to 8%. The emerging economies, Latin America, Middle East, Africa and Emerging PAC, drive 2015 growth at 26%.

The PC unit forecast from IDC in May 2015 shows a 2015 decline of 6.2%. Mature markets show a slightly bigger decline of 6.6% compared to the emerging market decline of 5.9%. The emerging market decline is dragged down by China, which had an 8% decline in Q115 PC shipments versus a year ago according to government statistics.

IDC's forecast for tablets and 2-in-1 PCs is a 3.8% decline in 2015 following 2% growth in 2014. Tablet growth in 2013 and prior years exceeded 50%.

How will these trends affect the semiconductor market in 2015 and 2016? The slowing of key market drivers such as smartphones and tablets will limit growth for semiconductors. The first quarter of 2015 started weakly with a 4.9% decline from Q414, according to World Semiconductor Trade Statistics (WSTS). The outlook for Q215 revenue growth for key semiconductor companies is mixed, as shown below.

Several companies are guiding for Q215 growth with around 3% at the midpoint (Intel, TI, STM and NXP). The highest growth rates are from Infineon at 9% and Avago at 7%. A few companies are expecting double digit declines (Qualcomm, SanDisk and NVIDIA). Weighted average guidance is about 3%, with a high end around 5%.

Our Semiconductor Intelligence March 2015 semiconductor market forecast was 8% for 2015 and 7% for 2016. Based on the weak Q115 and moderate expectations for Q215, we have lowered our 2015 forecast to 5.5%. We are maintaining our 2016 forecast of 7% based on some improvement in the global economy and slightly better prospects for the key drivers of smartphones and tablets.

The chart below shows recent forecasts for 2015 and 2016. 2015 forecasts are in a narrow range, from WSTS' 3.4% to our 5.5%. Forecasts for 2016 range from WSTS' 3.4% to our 7.0%.

Overall, the outlook for the global economy, electronics and semiconductors is slow to moderate growth over the next two years. The risk is more on the downside than the upside. Factors which could lead to slower growth are more plausible than factors which could lead to higher growth. However, the prospects of an economic downturn in the near future are low.