Global semiconductor industry revenue is expected to drop by 11.2% this year, according to a new Gartner forecast. It blames “economic headwinds” and weak end-market electronics demand. The prediction comes as chip giants post mixed financial results with Samsung betting on a strong second half to the year after it reported a record loss from its semiconductor division.
Last year the global semiconductor market was worth $599.6bn, showing 0.2% growth on the previous year, but the short-term outlook for 2023 isn’t good according to Gartner. The analyst company’s latest semiconductor revenue forecast predicts an 11.2% drop this year, but 18.5% growth in 2024.
“As economic headwinds persist, weak end-market electronics demand is spreading from consumers to businesses, creating an uncertain investment environment,” said Richard Gordon, practice vice president at Gartner. “In addition, an oversupply of chips which is elevating inventories and reducing chip prices is accelerating the decline of the semiconductor market this year.”
A significant proportion of the decline is coming from the memory sector which is struggling with a combination of overcapacity and excess inventory. Gartner predicts this is going to continue to put pressure on average selling prices in 2023 but will see a significant rebound in 2024 in line with the rest of the sector.
The memory chip market is dealing with overcapacity and excess inventory, which will continue to put significant pressure on average selling prices in 2023. The memory market is projected to total $92.3bn, a decline of 35.5% in 2023. However, it is on pace to rebound in 2024 with a 70% increase.
The semiconductor industry’s long-term challenges
“The semiconductor industry is facing a number of long-term challenges in the decade to come,” said Gordon. “The past decades of high volume, high-dollar content market drivers are coming to an end, notably in the PC, tablet and smartphone markets where technology innovation is lacking.”
Chips are “increasingly seen as a national security issue,” said Gordon. “Governments around the world are scrambling to build self-sufficiency in the semiconductor and electronics supply chain. This is leading the incentivisation of onshoring initiatives across the world.”
Recent years have seen the US and Europe develop multi-billion dollar chip investment plans to try and reduce the reliance on a small group of suppliers based in South East Asia, which was highlighted during the 2021 global chip shortage. Exports controls placed on China by the US and its allies as part of an ongoing trade war, and Beijing’s long-stated ambition to invade Taiwan, home to the world’s largest chip producer, TSMC, have added to the industry’s problems.
The market as a whole is also changing, becoming more fragmented than has been the case in the past. Gartner predicts the smartphone, PC and tablet market will stagnate, representing 31% of semiconductor revenue this year. Gordon says these markets “have saturated and become replacement markets devoid of compelling technology innovation.”
The fragmentation will come from other industries more rapidly innovating. Gordon cites the automotive and industrial sectors as areas where chipmakers will see revenue growth. Gartner forecasts a 13.8% increase to $76.9bn in 2023.
“End-market demand will be less exposed to consumer discretionary spending and more exposed to business capital spending. Supply chains will be more complex with many more intermediaries involved and varied channels to market, and to satisfy different end-market requirements, different types of capacity will be required,” said Gordon.
The decline in revenue prediction for 2023 but predicted spike in 2024 is mirrored in results being posted by companies like Samsung and STMicroelectronics, both of which revealed quarterly financial figures today.
STMicro saw a 20% increase in revenues in the first quarter of the year, defying signs of a wider slowdown in the sector. CEO Jean-Marc Cherry told investors the end market being served is driving different dynamics. "Based on our leadership position, strategic approach and current visibility, we anticipate another year of revenue growth and profitability," Cherry.
Samsung's results more closely matched the predictions, reporting a record $3.4bn loss in its semiconductor division driven by a glut in chips and weak demand.
However, executive VP Jaejune Kim predicts a second-half recovery for the semiconductor businesses, albeit smaller for memory as data centre owners invest more conservatively in upgrading capacity. In the longer term electric vehicle, AI and high-performance computing will drive higher demand, the company said.