The semiconductor industry is undergoing a brutal downturn in 2019—a drop so powerful that it can only be ended by an even more formidable force: the massive economic impact exerted by the deployment of 5G technology.

Following a 12.8 plunge in 2019, global semiconductor market revenue will rebound to 5.9 percent growth in 2020—an 18-percentage point swing—according to IHS Markit | Technology, now a part of Informa Tech. Global revenue will rise to $448 billion next year, up from $422.8 billion in 2019.

The deployment of 5G will be the main factor propelling this recovery—not only because of the renewed growth it will bring to the wireless industry—but also due to the wider benefits the wireless technology will bestow on global businesses and economies.

“Throughout the history of the semiconductor industry, every market downturn has ended with the arrival of a technical innovation that spurred a major increase in demand,” said Len Jelinek, senior director, semiconductor manufacturing for IHS Markit | Technology. “In the past, these innovations have had momentous impacts, such as the advent of the world wide web or the introduction of the iPhone. Now another historic innovation is set will take its place among these advances: 5G. However, 5G’s impact will spread far beyond the confines of the tech industry, impacting every aspect of society and driving new economic activity that will spur rising demand for microchips.”

Economic impact of 5G

It’s widely known that 5G mobile networks represent the next phase of mobile telecommunications technology beyond the current 4G Long Term Evolution (LTE) standard. As 5G is more widely deployed, the technology will usher in lucrative new service opportunities for mobile network operators (MNOs).

However, 5Gs greater impact will be changing mobile into a robust and pervasive platform that fosters the emergence of new business models and transforms industries and economies around the globe. Like other monumental innovations of the past, 5G promises to redefine work processes and rewrite the rules of competitive economic advantage. IHS Markit | Technology expects the rise of 5G to have profound positive impacts on human and machine productivity, ultimately elevating the living standards of people around the world.

By 2035, 5G will enable $1.3 to $1.9 trillion worth of economic output—in the United States alone. That’s nearly the same sum that U.S. consumers spent on automobiles in 2016.

Innovations enabled by 5G, including augmented reality, mission-critical services, fixed wireless access and the massive internet of things will drive this increase in economic activity. All these developments will require billions of dollars’ worth of semiconductors to implement.

Smartphones drive chip sales

The growth of 5G will also have a more direct impact on chip sales.

When viewed as an application market onto itself, the smartphone business is the largest consumer of semiconductors of any industry, with $87.7 billion in global revenue this year. This will dwarf semiconductor demand from major segments, including industrial, automotive, computing and consumer electronics.

As a result, the growth of this segment has a disproportionate impact on the microchip business.

Following declines in 2018 and 2019, the global smartphone business is expected to return to annual unit shipment growth in 2020. This rise will boost semiconductor market revenue driven by the smartphone industry, with chip sales to this segment increasing by 7 percent in 2020, following a 22 percent drop in 2019.

The semiconductor market also will benefit from renewed growth in other areas, including the automotive segment, the IOT, data centers and industrial.

Downturn in review

The recovery of 2020 will come as welcome news to a semiconductor industry battered by the worst downturn in a decade. The current downturn has been triggered by a freefall in DRAM and NAND memory pricing that started in late 2018 due to an oversupply of components.

The industry currently is experiencing some stabilization amid a slight improvement in memory pricing due to the arrival of the holiday build season. However, this slight recovery will be unsustainable, and revenue will be flat or decline in the first and second quarters of 2020.

The real recovery that the semiconductor industry has been hoping for will materialize in the second half of 2020, courtesy of the 5G revolution.