Semiconductor market to dip 2.5% next year as inflation hits

Not the money-printing machine investors were hoping for as demand set to decrease, says Gartner

Gartner thinks global semiconductor sales growth will fall this year compared to last, and is forecasting a revenue decline in 2023 as rising inflation and consumers cutting back on spending take a greater toll on demand.

The semiconductor industry has enjoyed a boost in revenue from demand outstripping supply over the past 18 months, but this party appears to be over. Gartner forecasts that global semiconductor revenue will grow by 7.4 percent in 2022, which is not to be sniffed at, but down from the figure of 26.3 percent for 2021.

In fact, the analyst firm has already downgraded its earlier forecast for 13.6 percent growth for 2022 published last quarter, due to the impact of inflation.

"Although chip shortages are abating, the global semiconductor market is entering a period of weakness, which will persist through 2023 when semiconductor revenue is projected to decline 2.5 percent," said Gartner's VP for semiconductors and electronics, Richard Gordon, in a statement accompanying the latest forecast.

The actual figures that Gartner is putting on this situation are revenue of $639.2 billion for the semiconductor industry this year, up from $594.8 billion last, but expects it to to shrink to $623.08 billion for 2023.

According to the analyst giant's oversight of the industry, there is already weakness in semiconductor end markets, especially among those companies that are largely dependent on consumer spending, such as smartphones.

Earlier this month, Gartner disclosed that it expects to see worldwide PC shipments decline by 9.5 percent this year, for example, with the figure for the consumer sector of the PC market even worse at 13.5 percent.

For this reason, global semiconductor revenue for this year has been reduced from the previous quarter's forecast by $36.7 billion, as economic conditions are expected to worsen through the remainder of the year.

These kinds of boom and bust cycles are common especially in the memory market, and so this is not a surprising development according to Gordon, who predicted in April that we were already past the peak of the semiconductor wave.

"The semiconductor market is entering an industry down cycle, which is not new, and has happened many times before," he said back then.

However, all is not doom and gloom, as Gartner believes that demand from the enterprise and datacenter sectors is still holding up, and from the perspective of buyers, inventories are recovering, lead times are beginning to shorten, and prices are starting to weaken.

"While the consumer space will slow down, semiconductor revenue from the datacenter market will remain resilient for longer (20 percent growth in 2022) due to continued cloud infrastructure investment," said Gordon.

The automotive semiconductor sector will also drive double-digit growth over the next three years, thanks to the semiconductor content per vehicle increasing in line with the transition to electric and autonomous vehicles.

Memory chipmaker SK hynix warned yesterday that memory demand would slow in the second half of the year, because shipments of PCs and smartphones are expected to be lower than initially predicted. The warning came as part of its results announcement for Q2 2022.

The Korean company said it expects demand for server memory from datacenter customers will also likely slow in the near term as customers choose to use up the inventory they have accumulated in response to earlier supply chain issues. However, in the mid- to long-term the company expects that memory demand from datacenters will continue to grow steadily.

Texas Instruments also said that it expects to see weaker semiconductor demand for the rest of this year, particularly from customers in the personal electronics market. The company said that it expects to see revenue fall in the range of $4.90 billion to $5.30 billion for the current quarter, compared with the $5.2 billion seen during calendar Q2.

Earlier this year, TI said it was seeing revenue growth by focusing its fabrication efforts on analog chips and embedded processors, which typically ship into the automotive and consumer electronic sectors, rather than investing in the kind of cutting-edge process nodes used for the latest CPUs. ®