Don't get in a semiconductor 'doom spiral' – sector will be back with a bang in 2024
Next year's revenue forecast to surpass the halcyon days of 2022
The outlook for the global semiconductor sector appears worse than feared, at least for the near future, with analyst Gartner now expecting to see revenue decline by 11.2 percent for 2023. Weakened demand is being compounded by an oversupply driving down chip prices, it said.
According to the latest forecast, demand has deteriorated and the analyst now expects to see global revenue reach $532 billion for this year, down from $600 billion during 2022.
However, Richard Gordon, Gartner VP for semiconductors and electronics, said the tech sector should be careful "not to get into a doom spiral," and reckons the market will pick up again. The forecast extends to 2024 when revenues are projected to hit $630 billion, up 18 percent year-on-year.
Chipmakers are seeing a slowdown in demand thanks to various factors such as the global economic outlook and rising interest rates that have made many consumers think twice about buying a new device; Qualcomm blamed falling smartphone demand for its 12 percent drop in revenue during the first quarter of this year.
"Some hoped for a recovery in the semiconductor market this year, but the weakness of the second half of last year has continued," Gordon told us, adding that the smartphone market is "saturated".
Cellphones, PCs and tablets together make up about 37 to 40 percent of the entire semiconductor market, Gartner estimates, and there is currently an oversupply of chips that has disrupted average unit prices.
It isn't just the device makers working through stockpiles, "semiconductor companies are also sitting on inventory waiting for it to go out the door, and it can take six to nine months for inventory to flush out," Gordon told us, adding: "recovery is on its way – the slump will bottom out this year."
Memory is likely to be the hardest hit part of the sector, with revenue projected to decline 35.5 percent this year to $92.3 billion, again thanks to overcapacity and excess inventory pushing down the price of memory chips. Micron blamed this for a net loss of $2.31 billion it reported last month.
Gartner expects to see memory bounce back with a vengeance next year with a forecast 70 percent growth in revenue.
"Whatever you say about the semiconductor market, it's got bells on for memory," Gordon remarked.
For DRAM, this will break out as a decline of 39.4 percent to $47.6 billion, but this is expected to lead to an undersupply in 2024 that will hike prices and increase revenue by as much as 87 percent.
Gartner expects NAND flash memory to follow a similar path, with a projected decline in revenue of 32.9 percent to $38.9 billion, but bouncing back to grow by about 60 percent next year.
The current situation is highly unusual because bit demand, or the total memory capacity being bought, is weak at the moment, Gordon said.
"Typically, bit demand remains the same while the price fluctuates, but the memory makers are being hit by a double whammy right now," he told us, "both DRAM and NAND are oversupplied."
Korean memory manufacturer SK hynix has just reported an operating loss of ₩3.402 trillion ($2.54 billion) on revenue of ₩5.088 trillion ($3.8 billion) for the calendar first quarter of 2023, for example. The company posted its first operating loss in 10 years for the last quarter of 2022.
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SK hynix forecasts an improvement in market conditions from the second half of 2023 as it claims that memory inventory levels at its customers declined throughout the first quarter, while inventory across the memory industry will fall during the second quarter following production cuts.
Texas Instruments has also just reported revenue down 11 percent from a year ago to $4.38 billion for the first calendar quarter 2023, blaming weakness across all its end markets, with the exception of automotive, where revenue was up.
Looking into its own crystal ball, Gartner thinks the automotive semiconductor market will be one of the growth markets during 2023, expanding 13.8 percent to $76.9 billion.
Some in the semiconductor industry had predicted that it might manage to avoid the cycle of boom and bust this time around, but Gordon said this is unlikely to change due to the way it operates, being slow to respond to an uptick in demand because of the time it takes to bring new fabs online.
"You can't bring a fab online incrementally, and once online you have to run it flat out 24x7 to make it profitable," he said, "and it takes a while for demand to take up the output. It will never change, there's a cycle every three to five years."
The chipmakers will likely continue to invest in building fabs, but capex spending is forecast to be down by 20 percent this year. That means some of these fabrication plants will be just shells for now, awaiting an uptick in demand before they are kitted out with "big ticket" items, such as costly manufacturing equipment.
The makers of chip manufacturing kit have themselves warned of a slump in demand, with spending on wafer fab equipment projected to drop by "a high teens percentage" during the rest of 2023, according to Bloomberg. ®