PC, 5G Demand to Help Drive 'Solid 2021' for Tech Firms, Says S&P

Strong demand in PCs, 5G, automotive and industrial points to a “solid 2021,” said a Friday S&P report, citing "good supply demand dynamics." In the current earnings season, a number of U.S. tech firms have delivered “strong beats and guides,” amid a “smart" 5G smartphone cycle and continued recovery in automotive and industrial end markets, it said. Ramping of 5G network deployments will add strength to the demand environment, it said.

Enterprise information technology spending remains weak, however. Increasing confidence in an economic recovery will likely result in higher spending as the year goes on, said the report.

Factory utilization is running “very high,” and some components are in short supply, contributing to firm pricing. Inventories have been drawn down, setting up a restocking cycle that could last through the year, it said. Semiconductor companies are expected to have strong demand as inventories are rebuilt and chipmakers buy wafer fabrication equipment to expand capacity.

The China market has returned to pre-COVID-19 performance for multiple quarters, and coronavirus cases are falling after the “holiday surge” in Western countries. Vaccine rollouts and expected federal stimulus in the U.S. should also help shore up demand, it said.

Apple's 5G smartphone rollout was a “great success” in Q4 and will support a 2021 upgrade cycle that Samsung will also benefit from, said S&P. The next-gen mobile phone cycle will be “very good for suppliers since 5G phones have higher silicon content.” Network upgrades are accelerating, too, to support wider adoption of 5G phones, with Japan and Korea furthest ahead, followed by China, the U.S. and Europe. Ericsson should pick up market share from Huawei, particularly in Europe, it said.

The 5G investment cycle should last several years due to reliance on short wave spectrum that requires more connection points, said the report. Enterprise and industrial use cases will be key to unlocking return on investment beyond smartphone services, it said.

Strong PC demand held up in the first half due to continuation of work-from-home trends and long lead times, said S&P, but it’s likely to wane in the second half against tough comparables as enterprises pulled forward PC investments. The research firm raised its 2021 estimate for global PC shipment growth to 0% from minus 7%.

Demand fundamentals are strong for both DRAM and NAND due in part to refresh cycles in smartphones and gaming consoles, said the report. NAND pricing, forecast to be weak in the first half, is “turning out to be better than feared” because Samsung may be scaling back investments, it said.