October 2023

GlobalElectronics/ICT
Outlook
CONTENTSOur Trade Sector Expert
Kyle is the Atradius Trade Sector Expert for global electronics
and ICT. He also has underwriting expertise in global and regional
retail markets and is currently expanding his knowledge ofthe metals and papers industries. Prior to joining Atradius he
was based in Hong Kong as a credit officer with Kookmin Bank.

Living and working in Taiwan
I developed an interest in theimportance of semiconductors for
global trade. Taiwan is a worldwide
centre for the semiconductor
industry, which in itself is an
important driver for the wider ICT
and electronics value chains.

Kyle Kong, Atradius Senior Credit Risk
Analyst, Taipei, Taiwan

Electronics/ICT forecast to become one of
the fastest growing manufacturing sectors
In particular the ICT (Information and Communications
Technology) industry is likely to become one of the world’s
fastest growing manufacturing sectors in the next few
years. Accelerating digitalisation, industrial automation andincreased demand for advanced semiconductors, particularly
from new growth segments such as artificial intelligence (AI)and electric vehicles (EV), will be the primary drivers of growth.

Although challenging global economic conditions continued to impact theelectronics/ICT industry during the first half of this year, the signs are thedownturn is now levelling out. Analysts suggest we will see a rebound of up
to 4% for high tech goods output as a whole during 2024 and further growthof around 7% is predicted for 2025.
But is this picture as bright as some might suggest? Could geopolitical issues
surrounding the production of semiconductors create issues downstream? Are
parts of the ICT market nearing saturation and is there a risk of oversupply?
These are important questions, not least because electronics/ICT is a multitrillion-dollar industry which can arguably be found at the heart of global trade,with some element of technology (from computers to chips) found in almost
every other sector. So, what is going on in the industry and are the positive
growth forecasts applicable for each of the subsectors across markets?

Electronics & computers output
Contents
Electronics/ICT forecast to become one of the fastest growing manufacturing sectors

3

Overview of electronics/ICT primary subsectors

4Regional overview of electronics/ICT performance6
Is there a skills shortage in the semiconductor sector and, if so, 9
could this impact production?

2022

2023*

2024*

6.9
5.3

2025*
8.9
7.2

5.6
4.9
4.6

1.0

0.0
-1.8
-3.5

What effect could chip nationalism have on the industry?9
To what extent do US-China relations impact the semiconductor industry?10

3.9

3.6
3.1

0.5 0.2

How do the US-China tensions affect other Asian semiconductor producers?11
What is the Chip 4 Alliance and could it achieve the US objectives?13
What is the Silicon Shield and what does it mean for the13
global semiconductor industry?
Summary

2
ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOK14

GLOBALAMERICAS

ASIA-PACIFICEUROPE

Year-on-year, % change. (* Forecast) Source: Oxford Economics.

3
ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKOverview of electronics/ICT primary subsectors
Electronic components and semiconductors: sector poisedfor reboundAlthough some semiconductor segments have done well thisyear, especially those used in AI and automotive applications,for the most part sales and production have been sluggish.
The economic downturn combined with the fact that manybuyers have been using up excess inventory stockpiled
during the chip shortages of 2021 and 2022 have resulted in
weak demand. Global production of electronic components
and boards is expected to shrink by 1.9% in 2023, withsemiconductors down by as much as 17%.
However, signs suggest the downward trend is now changing
direction and sales are beginning to gain momentum. The
electronic components segment is forecast to rebound by
4.6% in 2024.

Computers and office equipment: demand should pick up
next year
Consumers and businesses across the world have been
cutting back on their spending in light of high inflation andhigh interest rates. This has resulted in weak demand forcomputers and electronic equipment this year (down 2.4%).
Markets should begin to pick up again next year, althoughdemand is likely to grow fairly cautiously. A 3.7% production
rebound is expected for computers in 2024, while consumer
electronics should grow by 4.3% this year.
Telecommunication: enjoying a favourable market
Of the three major electronics/ICT subsectors,
telecommunication appears to have the best outlook, inthe near-term at least. Growth of more than 6% annuallyis forecast for 2024 and 2025. Although demand forsmartphones has slowed in the face of market saturation,
the sector is buoyed by growth and upgrades to mobile andbroadband infrastructure, especially for 5G.

The downward trend in thechips segment is now changing
direction and sales are
beginning to gain momentum.

Global output per subsector
2022

2023*

2024*

2025*

30.0

5.3

0.0
-2.7

COMPUTERS & OFFICE ITEMS

4

4.2
-2.4

-1.9

3.7

4.6

6.4

2.3

7.0

9.4

6.9

4.7

-7.3

ELECTRONIC COMPONENTS/BOARDS TELECOM EQUIPMENTCONSUMER ELECTRONICS

Year-on-year, % change. (* Forecast) Source: Oxford Economics.

ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOK

5
CONTENTS

ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKRegional overview of electronics/ICT performance
East Asia – Japan, South Korea, Taiwan
Japan, South Korea and Taiwan have all been hit hardby the downturn in the semiconductor market. Each has
experienced a sharp fall in production during Q1 this year,with production rates of high-tech goods falling by 4% inJapan, 10% in South Korea and 16% in Taiwan.

The Chinese government has expressed commitment toinvestment and nurturing growth in the electronics/ICT
industry. The ‘Made in China 2025’ policy and the 14th Five
Year Plan both target semiconductor self-sufficiency of up to
70% by 2030. Investment in the electronic components andboards segment will increase by 7% in 2024 and 9% in 2025.

However, there is light on the horizon. The downward trends
in production are on the turn and the markets appear poisedfor growth in 2024. The output for electronics and computers
is expected to grow by about 7% in Japan, 5% in South Korea
and 6.5% in Taiwan, with further growth predicted for 2025.

United States
The largest electronics subsector in the US, precision
instruments, is experiencing a downturn. Output in thissegment is expected to contract 3.7% in 2024 and 4.7% in
2025. This is partly due to a weaker economic performanceoverall and partly because of a global downturn in the sector.

The long-term forecast is bright. The region should benefit
from increased demand for semiconductors and electronics/
ICT products due to global trends towards increased
automation and digitalisation, as well as growth in sectors
such as electric vehicles.
China
China produces more than half of the world’s electronic
goods, computers and telecommunications, and theindustry’s fortunes inevitable reflect global demand. Witha relatively slow domestic economy and global demand in
decline this year, the industry’s output is forecast to grow by
just 1.5% in 2023. As with Japan, South Korea and Taiwan, an
uptick in growth is expected in 2024, where all high-techgoods production is forecast to rebound by 5.4%. The outlier
to this trend is telecommunications. Telecoms output is
expected to grow by 9% in 2024, boosted by growth in mobile
and broadband infrastructure.

In contrast, however, areas such as cloud computing andstorage, cybersecurity and automated data processing are
growing. Global digitalisation is driving growth in theseareas and the sectors needed to support them, such as
semiconductors.
The issue of a home-grown semiconductor industry is a hot
topic in the US. In a bid to lower the country’s dependency
on Taiwan and South Korea for cutting-edge, high-tech chips,
the government passed the CHIPS and Science Act in 2022.
The Act is supported by USD 40 billion in subsidies anda 25% tax credit to promote manufacturing at home,

Global trends towards increased
automation and digitalisation andgrowing electric vehicles sales
will drive ICT in the long-term.

Asia-Pacific: Electronics & computers key figures
2022
5.3

2023*
5.8

5.6
-9.6

-3.5

-3.1

In common with Asia and the US, Europe has passed
legislation in support of the local semiconductor industry,in particular the production of automotive chips.
The EU Chips Act is set to invest EUR 43 billion in local
semiconductor production and research, with the aim oflowering dependence on imports from Asia and achieving
a 20% share of global chip production by 2030.

Europe
The electronics/ICT industry in Europe (EU and UK) is
experiencing less volatility than other parts of the world.
Growth will amount to 4% in 2023, followed by a 1% increasein 2024. This is largely due to the composition of the sector.
This features a large proportion of medical and surgicalequipment (25%), which tends to be less prone to economic
cycles than other subsectors.

As with the US, large manufacturers are already seeking
investment in European plants, including Intel, TSMC,
Bosch, Infineon and NXP. However, current estimatessuggest the EU´s target of 20% of global production by
2030 is likely to be beyond reach, constrained by operating
and labour costs and limits on subsidies.

USA: Electronics & computers key figures
2022

2023*
6.2

2.2

6

PRODUCTION INDEX

2025*
0.3

4.4
-0.1

GROSS OUTPUT (SALES), REAL USD

-0.1

3.6

3.6

6.2

5.5

-1.4

INVESTMENT, REAL USD

Year-on-year, % change. (* Forecast) Source: Oxford Economics.

GROSS OPERATING SURPLUS(PROFITS), NOMINAL USD

2025*
5.5

4.9

5.1

8.9

2022
8.9

8.7

2023*

2024*

2025*

16.3

15.2
6.2

7.3

4.0

13.4

2.9

0.9

1.3

0.6

6.4

3.2

3.6

3.3

6.5

-4.3

GROSS OUTPUT (SALES), REAL USD

ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOK

1.8

-1.1

-1.9

Year-on-year, % change. (* Forecast) Source: Oxford Economics.

0.1

-0.6

-22.9

-25.3

PRODUCTION INDEX

2.4

2024*

EU and UK: Electronics & computers key figures
2024*

8.6

as well as USD 13 billion of investment in chip research. Output
growth of electronic components and boards is expectedby 5% in 2024 and 9% in 2025 and several global players,
including Samsung, Intel and TSMC (Taiwan Semiconductor
Manufacturing Company) have announced investment in theUS, despite the fact that capital expenditure on new factories
and operating expenses are likely to be higher in Asia.

INVESTMENT, REAL USD

GROSS OPERATING SURPLUS(PROFITS), NOMINAL USD

CONTENTSPRODUCTION INDEXGROSS OUTPUT (SALES), REAL USD

Year-on-year, % change. (* Forecast) Source: Oxford Economics.

INVESTMENT, REAL USD

GROSS OPERATING SURPLUS(PROFITS), NOMINAL USD

7
ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKIs there a skills shortage in the semiconductor
sector and, if so, could this impact production?

Growing unilateral approaches
in the chips segment could resultin higher prices for consumers.

Skilled engineers are critical to the innovation, development
and operation of the industry. A lack of engineering talent
could stifle production growth and there are ongoingchallenges around training and retaining skilled engineers.
This is particularly true in such a competitive market
where skilled engineers are sought after by other industries
and countries. What’s more, technological advancements
are rapid, requiring engineers to continuously learn
and adapt in order keep up with the latest developments.
According to the US Semiconductor Industry Association,
America’s chip sector could face a shortage of 67,000
technicians, computer scientists and engineers by 2030.
In fact, TSMC postponed the start of production of two
new factories in Arizona until 2025, because it could not
find enough workers with the expertise to install equipment
at such a high-tech facility.

What effect could chip nationalism
have on the industry?

Issues that
could impact
the industry

Semiconductor production is a strategic priority for Asia,
Europe and the US, with legislation and subsidies usedin several countries to support growth and reshoring.
This includes: the Made in China 2025 policy, South Korean
K-Chips Act, the Taiwan Chips Act, Japanese subsidies
for semiconductor joint ventures, the EU Chips Act andthe CHIPS and Science Act in the US.

Increased costs
Globalisation reduced production costs, as raw materials
and manufacturing were often sourced from countries
with lowest price. If advanced markets like the EU andthe US expand their semiconductor production, it is likelythat the higher labour costs and other overheads will
result in higher prices for consumers. This could be calleda devolution of the economies of scale.

Potential oversupply issues
However, this unilateral approach to semiconductor
development could lead to duplicated efforts. If multiple
countries invest in similar technologies, this could lead toan inefficient use of resources and oversupply of similar
products. When chips of a new generation come to the market,
the old one will become obsolete. If not managed carefully,
there could be a potential oversupply of older generation chips.
Increased investment in production facilities would boost
production capacity. But we should not look at the supply sidealone, but also the demand side. AI, machine learning, cloudservices and electric vehicles are still in the growing stage.
When demand for these advanced technologies rises, thedemand for semiconductors will rise as well. It is too early toascertain which side will grow faster.

8
ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKCONTENTS

9ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKTo what extent do USChina relations impact thesemiconductor industry?

How do the US-China
tensions affect other Asian
semiconductor producers?

In addition to chip nationalism (the desire for individual
countries to develop their own semiconductor capability),is the issue of geopolitics. This has been seen most keenly
in the tariffs, rules and tensions between the US and China
under Trump and latterly Biden.

Growth in emerging economies
One potential consequence of US-China tensions is thepossibility of growth in some of the emerging economies
in Asia. The US restrictions will impact the production
volume of products and industries that require high-end
chips, from smartphones, and AI, to EV. With a lack of thenecessary components on the market, production may beshifted to other countries, such as Vietnam and India, where
production costs tend to be lower.

In October 2022 the US imposed licensing requirements on
the sale of advanced chips, software, and a wide range ofsemiconductor manufacturing equipment used to produce
advanced chips. The controls also apply to non-US firms that
rely on American equipment or software. In August 2023
the US issued an executive order introducing screening foroutbound investment, and banning some investment into
Chinese quantum computing, artificial-intelligence projects
and advanced chips. Japan and the Netherlands have joined
the US export ban, potentially hindering Beijing’s domestic
investment in chipmaking capacity.

Squeeze on countries invested in trade with China
For other Asian countries the US policy is having a negative
effect. Japanese semiconductor firms generate 20-30% of
their business in China and stand to lose about 70% of it asa result of US curbs. South Korea exports about half of its
memory chips to China. Taiwanese and Korean producers
are heavily invested in manufacturing facilities in China.

The possible impacts of this policy are reflected in growthforecasts which predict China’s production of electronic
components and boards will grow by only 3% this year,
compared to a CAGR of 25% between 2015-2021 and could
also lead to a dent of as much as 0.8% in China’s GDP levels
between 2024 and 2026.
China is poised to respond with financial packages aimed
at supporting its domestic industry. However, even withmassive spending by China, it will take time to offset therepercussions caused by the US measures. For example,
Taiwan has achieved its market-leading position throughinvesting in infrastructures and nurturing experts since1974. Although there is no doubt about the investment China
is able to inject into the industry, they also lack talent andknowhow, which will take a long time to nurture. China
is unlikely to catch up in the short to mid-term. By someestimates, China’s semiconductor technology is nearly adecade behind the West, and semiconductor expertise is in
short supply. It will take time for these investments to cometo fruition.

Although the US export restrictions will impact the Asianchip producer sales and profit, the magnitude is hard to
predict. Producers like TSMC and SK Hynix, are currently
granted a waiver by the US to export to China. This is due toexpire in October 2023, but it is likely this will be extended
for a considerable period. In the short-term, chip producers
can still manufacture in China and have the time to graduallyshift their production capacity to other regions. However,there is the long-term threat that US-pressure will curtaildeliveries to China. In addition, the US is currently only
targeting advanced chip exports to China, so Asian countries
can still ship traditional chips to China.

US-China tensions have createdlooming uncertainty for East
Asian electronics/ICT producers
about future sales and profits.

Trade retaliation
Asia’s semiconductor producers are also vulnerable to further
actions caused by US-China trade tensions. For example,
in response to US sanctions, China imposed export controlson gallium and germanium, two critical materials in the
chipmaking process. While the Asian producers can source
the materials from other countries, it is costly in terms oftime and money, as China is a main producer of the materials.

10

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ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKCONTENTS

ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKWhat is the Chip 4 Allianceand could it achieve
the US objectives?
Washington has called for a ‘Chip 4 Alliance’ to co-ordinate
chip production and supply chains between the US, Japan,
South Korea and Taiwan and counter the growing influenceof China in terms of global supply. However, it is a challenge
to get the proposals to work. Although all four countries doshare a common interest in nurturing a stable supply chain,
they are also in competition with each other.
Taiwan and South Korea are major manufacturers of chips,
producing the most advanced chips in the world. They arelikely to be reluctant to share their sensitive technology andgive up their comparative advantage in the area.
The relationship between Japan and South Korea remains
strained due to historical tensions. And although bothcountries may currently feel closer to the US in geopoliticalterms, they could change their strategy towards China if thelatter feeds them enough benefits or the ruling party shifts.
Moreover, China remains a significant trading partner within
the region and its neighbours are likely to want to retain
trading relationships.

What is the Silicon Shield
and what does it mean
for the global semiconductor
industry?
The strategic importance of Taiwan to the global
semiconductor industry is critical. No country can beatits current dominance in the production high-end chips.
Global industries, from consumer electronics, automotive
to weaponry, all heavily rely on Taiwan for chips.

Any disruption to Taiwan’s
chip production could causea catastrophic ripple effectacross many industries andcountries throughout the world.

Any disruption to Taiwan’s chip production could causea catastrophic ripple effect across many industries andcountries throughout the world. According to Nikkei Asia,
a war across the Taiwan Strait could cost USD 2.6 trillion ofworld trade. This is a primary reason why many countries
would defend the island against the possible threat ofChinese aggression. In effect, its silicon semiconductor
industry works as a shield, protecting it from outside threats.
Indeed, many countries throughout the world have started
to diversify supply chains in order to reduce dependence
on one single source. The US invitation to TSMC to set up afactory in Arizona is one example of such diversification. In
addition, competitors are catching up with Taiwan. Samsung
has been working on development of advanced chips and ispredicting the ability to mass produce 2 nanometer wafers by
2025. If Taiwan loses its global dominance in advanced chips,
its Silicon Shield would weaken and the risk of conflict could
increase.

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ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKCONTENTS

ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOK

13

Summary
What are the strengths and growth drivers for
the ICT industry in the mid and long term?
Political ambition for high-tech expansion
Semiconductor production is a strategic target in the US,
EU and Asia. Legislation has been passed recently to support
the growth of domestic production in all three areas.
Growth of digitalisation, automation, AI and electric vehicles
Accelerating digitalisation, industrial automation, andincreased demand for advanced semiconductors fromnew growth segments like artificial intelligence and EV will
all help the ICT industry become one of the fastest growing
sectors in manufacturing.

What are the constraints and downside risks
for the ICT industry in the mid and long term?
Market saturation
Some electronics/ICT products (personal computers,
tablets and smartphones) is nearing saturation in somemarkets, negatively affecting growth prospects.
US-China trade tensions
The US has imposed regulations to prevent Chinesecompanies from acquiring US semiconductor manufacturing
technologies and equipment. A further deterioration of
the Sino-US relationship could negatively affect global ICT
and electronics supply chains and productivity, as wellpotentially leading to technological divergences (such as
in the area of 5G deployment).
Growing chip nationalism
There is a risk that nations seeking to develop theirown semiconductor industries could lead to technologicaldivergences, inefficient production processes and increases
in production costs. These are likely to impact sector
productivity and profitability.
Taiwan geopolitical tensions
An escalation of the current tensions in the Taiwan Strait
between Taiwan and China could severely affect the supplyof cutting-edge semiconductors for chip-consuming
ICT segments and other industries across the world.

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ATRADIUS GLOBAL ELECTRONICS/ICT OUTLOOKCONTENTS

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