Taiwan #1: South Korea Dethroned as Top Semiconductor Equipment Manufacturer

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Taiwan regained its position as the largest manufacturer of semiconductor equipment, as sales hit $17.12 billion in 2019 removing South Korea from the top spot on the Worldwide Semiconductor Equipment Market Statistics' leaderboard.

The leaderboard and report, published by the industry association Semiconductor Equipment and Materials International, shows global sales of semiconductor equipment hit $59.8 billion in 2019, reflecting a 7% drop from 2018. Taiwan raked in $17.12 billion in sales, which represented a 68% growth compared to the year prior. China maintained its position as the world's second-largest supplier, with 3% year-over-year growth and annual sales of $13.45 billion. Korea slipped the furthest with sales plummeting by 44% to $9.97 billion.

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Blame for Korea's dramatic drop can largely be assigned to the trade war, China's slowing economy, and Korea's earlier decision to pivot large parts of its economy around exporting to China.  When Korea initially signed its Free Trade Agreement with China, Taiwan estimated that its regional economic rival-slash-peer having preferential access to China's economy would shave 0.5% from Taiwan's GDP with further reductions down the road. However, the opposite turned out to be true as South Korea's economy shrank while Taiwan emerged as a trade war winner.

As a push to become less reliant on China, semiconductor equipment sales grew in North America, which clocked in at $8.15 billion.

Looking Towards the Future

Stakeholders in the semiconductor equipment manufacturing business, including in Taiwan, are looking nervously towards 2020 and beyond as Covid-19 chills demand for electronics while supply chains struggle to catch up.

Research firm IDC predicts that revenues for semiconductor companies will decline by either 3-6%, or, in the second most likely scenario, have declines in revenue of 12% or more. IDC believes that the only sectors seeing significant growth in 2020 will be telecom, servers, and IoT.  For revenues to decline 12% or more, supply chains would need to stabilize in one to three months while it would take nine to 12 months or longer for demand and initiatives to stabilize.

All this means that semiconductor equipment manufacturers will be caught with an oversupply in 2020, as their clients that actually make the silicon using the provided equipment -- such as TSMC TPE:2330 -- will be reducing their operations to compensate.

TSMC's ADR, listed on the New York Stock Exchange, closed at $49.66 at the end of the Wednesday trading day. Its stock listed in Taiwan is up 7% on-month.