Even TSMC can't cook chips fast enough to sate AI's hunger

Semiconductor foundry industry thanks its lucky stars amid slow general recovery

Demand for AI-related tech is at a high point amid a relatively slow recovery for the semiconductor foundry industry, according to Counterpoint Research, which expects the situation to last for the rest of this year.

Foundry companies overall saw a revenue increase of 12 percent year-on-year in Q1 2024 - no monetary value was given. However, it was also down 5 percent from the previous quarter, making for a mixed picture.

According to Counterpoint, this was not due to seasonal effects alone, but reflected a slower recovery in demand for non-AI semiconductors, and this trend covered a number of sectors such as smartphones, consumer electronics, IoT, automotive, and industrial applications.

TSMC, which earlier reported revenue up 16.5 percent for calendar Q1, is said to have revised down its estimate for growth in the logic semiconductor industry from greater than 10 percent to 10 percent for the rest of this year.

However, the Taiwanese semiconductor contract chip maker is anticipating revenue from datacenter AI products (mostly GPUs) to more than double. In fact, the demand is so high that TSMC does not expect to be able to produce enough of these chips, despite aiming to double the capacity of its Chip-on-Wafer-on-Substrate (CoWoS) multi-chip packaging process, Counterpoint says.

TSMC expanded its share of the market from 61 percent to 62 percent, when compared with the same period last year. Second-place Samsung also grew its share from 11 percent to 13 percent, and China's SMIC expanded from 5 percent to 6 percent.

Counterpoint Global Foundry Market Share

Global foundry market share – click to enlarge

Of the remaining top five foundries, UMC held steady at 6 percent, while GlobalFoundries was down from 7 percent to 5 percent, according to Counterpoint's figures.

Samsung's foundry revenue was down during Q1 due to "smartphone seasonality," meaning the number of people looking to buy a device always tails off after Christmas, although Counterpoint claims that Samsung's own Galaxy S24 held up, while demand for mid and low-end devices was weak.

However, at group level Samsung Electronics reported a 68 percent year-on-year increase in sales for Q1 2024, largely thanks to memory sales driven by (you guessed it) AI demand. The company expects foundry revenue to bounce back in Q2 with double-digit growth.

Of the other top five foundries, SMIC's quarterly results surpassed market expectations and it took the number three spot for the first time. This was thanks to recovery in the China market with the company looking to continue growth in Q2 as inventory restocking broadens out, according to Counterpoint, and the Chinese chipmaker is potentially looking at mid-teen growth for the year as a whole.

"We've observed more evidence to support that the AI demand is real," Counterpoint Analyst Adam Chang said in a statement, just in case anyone thought it was all fanciful thinking by the tech companies.

There is increasing capex among cloud service providers adopting the AI hardware first, followed by enterprises, he added.

Counterpoint expects demand for AI products to remain strong in 2024, extending into 2025. While non-AI demand remained sluggish in Q1, "we think the inventory setup is promising after several quarters of de-stocking," Chang said. ®

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