World Demand for Silicones Rising, New Study Shows

According to studies from the Freedonia Group, Inc, the world demand for silicones is likely to rise 5.7 per cent per year up to $19.3 billion by 2019.

Silicone prices have seen a better outlook in recent years and the demand for the product in developing regions is rising due to economic advancement and an increase in penetration within the market.

The Freedonia Group, Inc., report indicates that the Asia and Pacific region will be a strong source of demand for silicones, mostly attributable to China.

“Although China’s silicone market will not maintain the extremely rapid pace of gains seen in recent years, growth will still continue to be well in excess of the global average,” said analyst Elliott Woo.

Other increases in demand include electrical and electronic products in the Asia and Pacific region, and construction activity in the US market. In Western Europe, Freedonia predicts a slow advance, with a demand for silicones in the health and personal care industry.

Urbanization and development in Africa and the Mideast will lead to a higher demand in that region, and in Central and South America, Freedonia expects a demand near the world average owing to motor vehicle production. In Eastern Europe, export based manufacturing activity will keep a demand steady, although slower than in some regions.

Regardless of where you are located, it is obvious that the demand for silicones is widespread around the world. All of this demand likely parallels demand for other industry products like barrier coatings, contrast enhancement materials, optical isolators, and more. Whether you are working with low gas permeability silicones or 2D and 3D packaging and temporary bonding material, various applications such as health care, commercial products, computing, and auto manufacturing will require various materials from the semiconductor industry, along with the growing demand for silicones.

If the Freedonia predictions are correct, silicones will be a very lucrative market in coming years, with no signs of slowing down. If your company or industry relies on silicones and other technical products relating to silicones, you may be facing more competition for the products you need in coming years.

Prepare yourself by setting up a great relationship with a supplier now, so that when the demand increases, you will not find yourself wondering how to get your hands on silicones and other products you require for your own success.

Many U.S. companies depend on China for their growth and this is particularly true of the semiconductor industry. Concerns regarding growth have unsettled the semiconductor industry and shares only reached an uneasy balance following the announcement of stimulus measures.

Semiconductors are a core component of microprocessor chips and transistors, meaning that any device that is computerized or uses radio waves relies on semiconductors. China consumes more chips than any other country and its consumption is on the rise. Most of these chips are imported from international players, which has been a drain on China’s economy, leading to government policy that focuses on reducing dependence on overseas vendors and strengthening local suppliers.

Since 2000, China’s financial planning has supported local semiconductor players. Benefits have ranged from duty concessions to tax holidays. The government has also funded infrastructure development and helped the establishment of startup companies, leading to the development of foundries like Semiconductor Manufacturing International (SMI – Snapshot Report), Hejian, Grace and Taiwan Semiconductor’s (TSMC) SongJiang Operations, facilities that could be used by US operators in order to reduce costs via their simpler operations.

The Chinese government has restricted the import of advanced technologies in order to spur domestic development. One of the results of this, however, was the limiting of the sector’s prospects. With the gap between Chinese production and consumption continuing to widen, the government promoted M&A and funded the construction of R&D capabilities.

If the government’s recent activities turn out to be a trend, it is likely to collaborate in order to milk US players and to develop local talent. The US would benefit from cheaper Chinese engineers. Microsoft and Intel have already set off along this route. Another bonus to the US is that locally-developed IP will raise the government’s concerns regarding IP protection.

A potential negative to consider, however, is the possibility of aggressive acquisition of US companies with the aim of rapidly acquiring IP. It is also worth considering that the government’s development of the sector might lead to global over production, which would affect prices, especially at the trailing edge.

With the difficulty of setting up, driving efficiencies at advanced nodes and seeking profit for Chinese operations, it looks like US tech with leading edge capabilities and IP will maintain a lead over China for a few more years. Intel’s action of extending its 14nm process and its tick-tock cadence for new architecture from 2 to 2.5 years suggested that it will be tough to continue with Moore’s law for long without alternative technology or material innovation.

Growth rates for tablets, smartphones and PCs are all down this year. It is expected that they will rebound in 2016 and beyond, but not strongly. While some are looking at the Internet of Things to become a driver for chips, market experts do not consider this a likely prospect.

The cause for the slump in chip sales, according to Gartner semiconductor analyst Jim Walker, is that the big three drivers are all slowing down. Industry growth is expected to be single digit, between 4 and 7 percent, for several years.

PCs were a driver because they packed lots of chips. Smartphones used fewer, typically cheaper chips but they sold in much higher volumes. PC sales are expected to show a decline, including a 1.9% drop in the ultramobile segment, which was up as much as 15.2% in 2014. It is expected that mobile phone sales overall will be about flat at 0.7% growth for 2015.

Walker added that only organizations supplying Apple would be doing well this year. He also noted the broad range of mobile phones on the market. Low-end models are available with as little as $24 in components. The latest iPhones, on the other hand, sport an estimated $202 in chips and displays. Much of Apple’s margins are in reselling memory chips, with the company charging a premium of around $100 for versions of iPhones with 64 Gbytes of flash despite the cost of a 64-Gbyte SD card being only $20.

As a reaction to uninspiring figures, people have been looking to the Internet of Things to be the next big driver, but market watchers do not believe that the Internet of Things will revive the market. Wearables are growing at a 25% rate, for example, but this will represent only 1% of the semiconductor market in 2019. The reason for this is that they utilize few, very inexpensive chips.

There has also been much talk of driverless cars being the driver of the semiconductor industry, but this is unlikely to be the case for the same reasons as with the Internet of Things. The US is expected to have turned out about 17 million cars in 2015, up from about 15 million previously. Each car contains as much as $400 in semiconductor content, but the whole sector represents only around 8% of the total chip market.

According to Walker, the driver of the semiconductor industry has yet to be determined. While nothing on the horizon appears to have the makings of a new driver, the solution might come from left field.

“No one knew ten years ago the tablet would be a driver,” Walker said.

The next big driver, in whatever form it takes, might still be in development.

Companies in the global high tech industries are competing to increase market presence while continuing to face challenges posed by slim operating margins, high capital expenditure, shortening product life-cycle and managing a global supply chain. Currently high-tech manufacturers are dealing with these difficulties by developing new partnerships and acquiring new capabilities through mergers and acquisitions.

Since 2013 mega-mergers in the semiconductor industry have been driven by the development of new technologies like the Internet of Things (IoT) and huge data centers which require more and more advanced components.

Developing a leading-edge chip can cost upwards of US$100 million which is a big investment even for big companies.  As a result, in order to maintain advantage in the market place, more and more companies are turning to merger and acquisition (M&A) of established technology as a way to enable new classes of products that meet customer needs in the data center and IoT market segments, while streamlining costs.

As an example, Intel joining with Altera is expected to strengthen Intel’s profitable business of supplying server chips used in data centers.  The shift from personal computer to smart mobile devices has increased the need for high-end Intel chips to process ever increasing amounts of data.

Avago built its business units focused on big data center with three deals: LSI Inc. in 2013, PLX Technology in 2014 and Emulex in May of this year.

Another factor driving the increase in mergers and acquisitions is that many investors in the technology sectors have realized profit through M&A.  High stock prices after each of Avago’s acquisitions rewarded their investors handsomely.

Ultimately M&A’s are usually negotiated with an eye toward optimizing operational costs and increasing research and development (R&D) effectiveness and efficiency.  Sometimes, as with Intel and Altera, the merger is expected to help streamline an existing operation since Intel already produces Altera’s FPGA devices.

The fast-paced global high-tech industry has distinct and complex challenges.  As companies strive to gain and maintain competitive differentiation by adopting new approaches it stands to reason that one of those approaches is M&A.  More mergers are expected which will increase impacts to the supply chain in positive and negative ways.  For example: fewer suppliers: OEMs and ODMs – instead of 6 suppliers, you only have three; change of part number; shorter line card requiring distributors to update their line card; and obsolescence and new products to name a few.

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