The modern technology industry took off in 1982 with the start of the internet age. Production capacity soared for ‘passive’ components such as resistors, inductors, capacitors and transformers as PCs, notebooks and smartphones were rolled out and industry adopted robots.
New suppliers faced few barriers. But demand for the proliferation of new technologies reached saturation in recent years and began to fade, leaving excessive capacity in many parts of the industry. New applications, such as the Internet of Things, have so far failed to spur demand and with much longer lifecycle for many components, including transistors, stocks have piled up. High-end items such as silicon wafers and the panel sectors used in displays and TVs have suffered as well as passive components.
Now, however, the industry is entering in a new phase. While smartphone sales gradually pick up, new technologies are emerging. Autonomous driving, electric vehicles, 5G, the Internet of Things (IoT) and growth in data – plus robotics and industrial automation – are expanding and more sophisticated products require more components.
Meanwhile, brutal consolidation and much more disciplined expansion is limiting supply. Japanese manufacturers of passive components are retreating from the consumer electronics market to focus on high-margin vehicle products. In 1985 there were more than 20 major DRAM suppliers; by 2013 there were just three. There is now insufficient capacity for some passive components and memory prices rose 50% to 60% last year, even though Chinese expansion means an oversupply remains in panels.
Memory demand is shifting from consumer applications towards industrial use with the rapid growth in data centres driving DRAM demand. We expect 24% annual growth in data-centre investment to lift spending from $35bn in 2016 to $82bn by 2020.
Cars are becoming smarter and more interactive: autonomous driving and electrical vehicles require a large amount of computing power.
Major innovations affecting vehicles include powertrain electronics, embracing engine controllers and voltage regulators, while entertainment electronics range from on-board audio and video systems to satellite radio-receivers. There are also airbag sensors, plus controls for climate, security and access, besides systems to manage suspension, traction and power-steering. Other innovations include infotainment systems plus sensors covering speed, temperature, tyre pressure and fluid levels.
Autonomous vehicles also require cameras and sensors to monitor their surroundings and machine-learning to understand the collected data and to make proper decisions. They could have a thousand times more semiconductors than smartphones. 5G and V2X will allow better communication. The first 5G commercial networks are expected to be launched in 2020.
As growth in smartphone sales flattens, the migration to 5G will allow faster data-transmission speeds with reduced time for one device to send packets of data to another. That should boost growth in the IoT, where only a limited number of new products have been launched to date, with applications in cars, industrial robots, smart cities, and medicine – but we think its real value lies in analysing data rather than simply storing it.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Bruce Lu
Equities: Stock ratings and basis for financial analysis
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HSBC & Analyst disclosures
Company Ticker Recent price Price date Disclosure
AU OPTRONICS 2409.TW 12.35 03 May 2018 6
SK HYNIX INC. 000660.KS 82900.00 03 May 2018 4, 7
YAGEO 2327.TW 653.00 03 May 2018 4, 6
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