Semi Scenarios

Semi Scenarios
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Given the volatile nature of the US/China tariff situation it has been obvious that not only have component suppliers been pulling in orders to beat on-again-off-again tariffs, but consumers, already burdened by high inflation and recession fears, have been a bit more cautious than usual about making purchases.  According to Tech Insights, high DAO inventory levels are coming down a bit but demand for most semiconductor components remains weak, while Ai related component demand continues at a strong pace.  Tech Insights has come up with two scenarios for the 2025/2026 semiconductor space after lower their earlier (March) forecast in April.  The two scenarios, moderate impact and severe impact, show how much the growth for 5 semiconductor type categories could be affected by a resumption of the more severe tariffs that were put in place and then postponed recently,
Tech Insights current expectations are now between the April forecast and the moderate scenario as negotiations continue, but the more severe scenario could occur if negotiations fail before the July deadline.  The current forecast and two scenarios are as follows:

​The table below shows the current growth forecast for  a number of semiconductor  categories for 2025 and 2026 and by how much that growth will be decreased for each semiconductor type (and total) for both years, under both scenarios.  The 2025 total growth forecast is for 14% growth.  Under the ‘moderate’ scenario, that growth would be decreased by 5.3% to 8.7% growth and under the more severe scenario it would be decrease from 14% by 10.4% to 3.6% growth.  In 2026, the current forecast calls for 9% overall growth.  Under the ‘moderate’ scenario for 2026 growth  would de decreased by 17.2% to negative 8.1% growth and under the severe scenario that 9% growth would decline by 34% to negative 25% growth.  Table 2 shows the same scenarios for the semiconductor equipment segment and their impact, while Table 3 shows which products would be the most affected by semiconductor tariffs from both a BOM standpoint and from the share of semiconductor sales.

To take the impact of semiconductor tariffs a bit further, we look  at a McKinsey report that shows semiconductor share of product BOM, essentially quantifying the impact of semiconductor tariffs on various CE products.  We arranged the table according to the sales value.  While SSDs are only ~5% of semiconductor sales value total, the table shows that 90% of the BOM is semiconductors, making them the most affected product category for semiconductor tariffs, but from a total value standpoint data center server racks represent 25% of all semiconductor sales value while having an 81% semiconductor BOM.  Making DCS the most impacted by semiconductor tariffs of all CE product categories.

​Needless to say at least some resolution to the trade issues must occur this year and one that is sustainable for at least 2025 and 2026.  If another postponement or interim solution is proposed it will just serve to continue the lack of long-term planning that seems to be the case across the component business, other than in the AI space, which will lead to more difficult circumstances in the out years of this administration, when negotiators will be doing everything possible to run out the clock before committing to major capital spending or purchase agreements.  Without at least some significant agreements on lower tariffs between the US and China, we expect both countries will see slower than expected semiconductor growth over the next few years.