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2023 Outlook: Coming out of year of Black Swans, semiconductor industry likely to be less volatile in 2023

Judy Lin, DIGITIMES Asia, Taipei 0

2022 has been a year of Black Swans. The unforeseen events that disrupted the supply chains this year included the Russia-Ukraine war, China pandemic lockdowns, and the US announcing new export control rules on October 7. Just the Russia-Ukraine war alone is estimated to cost the world US$2.8 trillion in lost output by the end of 2023, according to OECD.

Let's not forget the US Federal Reserve's aggressive interest rate hikes to combat inflation triggered several rounds of market stampedes, which can be considered as a grey rhino and have impacts on consumers' wallets as they have less disposable income to spend. The crash of the cryptocurrency market after the FTX bankruptcy took a toll on the companies that used to enjoy robust business with bitcoin miners.

The two gigantic dark clouds that have brought an unexpected pouring rain and are still overcast over the outlook of the semiconductor industry in 2023 – the retreat of consumer demand for PCs and consumer electronic devices and the inventory adjustment of the industry – will still be a concern. But as every cloud has its silver lining, it pays to be patient and wait for the sun emerges from behind.

The World Semiconductor Trade Statistics (WSTS) will soon release an updated forecast for 2023, said Gabriel Chou, Asia Pacific vice chair of WSTS. "We expect a downward revision." WSTS' previous forecast released in August projected a 4.6% growth for global semiconductor market to US$662 billion in 2023, while 2022 is predicted to enjoy a 13.9% increase.

In 2023, global foundry manufacturer revenue will show a 2-3% decrease due to the uncertainty of the macroeconomic environment and the US-China technology war, predicted Eric Chen, DIGITIMES semiconductor analyst.

"Looking ahead to 2023, considering the inventory correction of end products will continue into the first half of 2023, and the economic outlook will affect people's consumption desire, it is likely that the inventory correction of end products will be lengthened, and the global foundry revenue will decrease by 2.3% in 2023, with TSMC the only foundry that will see 2023 a growth year," wrote Chen in his latest report. The foundry market is projected to see a 25.8% increase in revenues in 2022, to US$137.2 billion, according to DIGITIMES Research estimates.

Although geopolitical risk was constantly mentioned by analysts as one major uncertainty that can disrupt the supply chains, it is not as worrisome to many semiconductor manufacturers as the "demand freeze" that resulted in massive inventory that needs to be corrected by the end-device customers.

Semiconductor companies are resonant in their Q3 earnings conference calls on the inventory correction and consumer demand weakness as the greatest impact on their performance in the first half of 2023.

Read more: 2023 Outlook: 8 trends to shape semiconductor industry in 2023 and beyond

As smartphones, notebook PC and other consumer electronic devices together remain the largest source of revenues for the majority of semiconductor companies, industry players are eager to know how would 2023 pan out for their business development.

DIGITIMES Research forecast a 10.7% decline in global smartphone shipment for 2022, and a meager 2.3% rebound in 2023.

DIGITIMES notebook PC research analyst Jim Hsiao estimated a 22.8% drop in shipment in 2022 and another 4.2% year-on-year decline in 2023 for laptops.

As for servers, after the 6.3% growth estimated in 2022, DIGITIMES Research predicts a slowdown in shipment growth in 2023, which is expected to increase by 5.2%.

Global foundry revenue vs smartphone, NB PC, and server shipment 2022-2023 growth projection

Revenue vs shipment

2022 YoY (%)

2023 YoY (%)

Foundry revenue

25.8

-2.3

Smartphones shipment

-10.7

2.3

NB shipment

-22.8

-4.2

Server shipment

6.3

5.2

Source: DIGITIMES Research, November 2022

Although industrial internet of things (IIoT), automotive and other specialized semiconductors for communications are likely to maintain relatively stable growth, the growth momentum of individual semiconductor companies will vary, depending on the contribution ratio of those applications to their businesses.

Despite the short-term hiccup, in the medium to long term, Chen said there are trends that create the demand to support sustainable growth for the next 5 years. When the industry recovers, the increase in demands for applications such as 5G and high-performance computing (HPC), higher silicon content of electronic vehicles (EV) and automobiles, coupled with brand and system owners such as Amazon, Microsoft, Google and Apple moving into proprietary chips while IDMs continue to expand outsourcing, foundries will be the beneficiaries. DIGITIMES Research estimates that global foundry revenue will grow at a compound annual growth rate (CAGR) of 8.3% from 2022 to 2027 and reach US$204.7 billion by 2027.

More on 2023 Outlook: Semiconductor Industry Preview 2023

Silver linings

As previously mentioned, there are not without positive sides in 2023. After experiencing a roller-coaster ride in 2022, the volatility is expected to flatten out in 2023. China will also need to change its COVID control strategy to salvage its sluggish economic growth. Beijing has just recalibrated its Covid curbs and announced supportive measures for property financing. ANZ Banking Group research note upgraded the GDP growth of China in 2023, hopeful for the normalization of policy.

In the short to medium term, there will be additional jobs created to construct new fabs and deliver the productions. It is expected to create 277,000 direct jobs in the US semiconductor industry and 1.6 million indirect and induced jobs, according to the Semiconductor Industry Association's "State of the Industry Report 2022".

There will be similar situations in countries that are building new semiconductor fabs and production facilities.

Deloitte estimated that the global semiconductor industry revenues will rise by over 80% from the 2021 level to more than US$1 trillion in 2030 and that more than one million additional skilled workers will be needed by 2030, equating to more than 100,000 annually, on the basis of roughly 2 million people directly employed in the industry worldwide. The problem is, there are less than 100,000 engineers getting out of schools in the world every year. The talent shortage would be a long-term challenge.

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