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What Is the Outlook for the Communication Semiconductor Industry?

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Communication semiconductor industry outlook

In the previous part of the series, we saw that Broadcom (AVGO) expects strong growth in fiscal 3Q16 driven by increasing demand in the wireless segment. As Broadcom doesn’t work in isolation, earnings guidance alone cannot determine the growth drivers. There are several competitive, technological, and macroeconomic factors that drive the overall growth of the industry.

Broadcom’s performance will be directly proportional to the market’s performance given its dominant position in the communication semiconductor market. We’ll look at the performance of the communication semiconductor market in this article.

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According to IC Insights, the communications market is expected to overtake the computer market to become the largest end user market for global IC (integrated circuit) sales in 2016. The report forecasts that overall IC sales will reach $291.3 billion in 2016 with the largest contribution of 39.3% coming from the communication market, followed by 34.7% from the computer market.

The forecast comes on the back of a strong performance from communication applications in 2015. According to IHS, only ten semiconductor subsegments with over $1 billion in annual revenue grew more than 5% YoY (year-over-year) in 2015. Four of these subsegments were communication subsegments. Wireless communications logic ASICs (application-specific integrated circuits) grew by 30% and RF (radio-frequency) small signal transistors, wired communications logic ASICs, and wireless communications ASSPs (application-specific standard products) grew by 10%–20%.

Key markets for communication

IC Insights expects communication to be the largest IC end market in the Asia-Pacific and Americas regions, accounting for 42.9% and 39%, respectively, of the total IC sales in 2016. The communication segment includes components for smartphones and wireless networks such as 3G/4G or LTE (long-term evolution). The segment will expand further with the emergence of IoT (Internet of Things) and 5G.

China (FXI) is deploying its LTE network, boosting the demand for communication infrastructure. Moreover, the overall smartphone demand is shifting from high-end phones to mid-end and low-end phones, driving unit sales of Chinese handset makers such as Huawei and OPPO Electronics. On the other hand, handset giants like Apple and Samsung (SSNLF) are witnessing slowdowns or declines in smartphone sales.

Many companies such as Broadcom, Qualcomm (QCOM), and Skyworks (SWKS) have high exposure in China and they’re aiming to tap the LTE growth.

In the Americas, 5G pilots are running in full swing with Qualcomm, Xilinx, and many others participating in the pre-deployment and testing of the technology. Next, we’ll look at the performance of the overall semiconductor industry.

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