PALO ALTO, U.S. -- Even as new technologies offer the promise of an unparalleled stretch of growth in the global semiconductor industry, top executives fear the sector will be used as a chip in the U.S.-China trade war.

Global shipments of semiconductor equipment are forecast to grow 10.8% this year and 7.7% in 2019, according to a report released Tuesday by SEMI, an association serving the manufacturing supply chain for the electronics industry.

The forecast comes during this year's Semicon West trade fair in San Francisco. The three-day show devoted to semiconductor manufacturing equipment ended Thursday.

Other statistics suggest the value of global chip sales will increase 12.4% in 2018 and 4.4% next year, creating four straight years of growth. The market last enjoyed such a stretch with six years of growth that began in 2002.

Machines now generate more data than people do, a shift that heralds huge changes in the semiconductor industry, said Gary Dickerson, CEO of U.S. company Applied Materials, the world's largest maker of semiconductor manufacturing equipment.

The advent of technologies supporting the "internet of things" and the broader adoption of artificial intelligence portend hefty growth in semiconductors, particularly to meet the needs of data centers.

Equipment manufacturers like Applied Materials, ASML of the Netherlands and Japan's Tokyo Electron have been a great benefit to the parts makers that supply components for their equipment.

J&J Machine, a U.S. manufacturer of precision parts, has been very busy over the past year with many outstanding orders, operations manager Tim Frank said at the trade fair.

But the celebratory tone at Semicon West is tempered by worries about the trade friction and tariffs between the U.S. and China.

Even a company like Nanotronics, an American producer of optical inspection equipment, senses the danger. The company manufactures inside the U.S., so it avoids immediate impact. But Nanotronics also has Chinese customers, and CEO Matthew Putman hopes that demand will not cool.

Share prices have plunged by more than 20% for both Applied Materials and Lam Research, an American designer and producer of semiconductor equipment, since the U.S.-China trade battle intensified in mid-March.

A 25% added tariff on goods imported from China creates a $20 million to $30 million hit to the semiconductor supply chain, mainly due to higher procurement costs for parts like bearings and cylinders, SEMI said.

The tariffs might be extended to memory chips, which would inflate the damage beyond $500 million, said Jay Chittooran, a public policy manager at SEMI.

The industry's biggest fear is that President Donald Trump's administration might restrict exports of semiconductors and chip manufacturing equipment to China, said Robert Maire, president of consulting company Semiconductor Advisors.

U.S. producers hold a 60% share of the global market for semiconductor manufacturing equipment. And with chipmakers establishing fabrication bases in China, that country is poised to become the largest market for such equipment outside of South Korea come 2019.

Published Date:2018-07-16