Even though major players including Samsung, SK Hynix, and Micron have already cut production significantly, the prices of DRAM and NAND Flash memory products took a nose dive in the first half of 2023. The global foundry industry's combined revenues in 2023 are also expected to shrink more than 10% on year after growth of nearly 30% in 2022, according to DIGITIMES Research. What is the chance for a market recovery in Q4? And how about 2024?
There seems to be light at the end of the tunnel. According to WSTS statistics, the global semiconductor market's sales value in 2Q23 reached $124.5 billion, marking a growth of 4.2% compared to the previous quarter (Q1 2023) but a decline of 17.3% compared to 2Q22. Will the rebound continue?
DIGITIMES Research Center Consultant and Director Tony Huang replied to DIGITIMES Asia's questions to share insights on the semiconductor market outlook for the coming year.
Q1. The performance of the semiconductor industry in 2023 seems to have fallen short of expectations. What were the main reasons behind that?
Shipment of main applications of semiconductors, including smartphones and PCs (desktops and notebooks), continued to decline in 2023, triggering significant oversupply in DRAM and Nand Flash products and subsequent price tumbles. The end demand for many electronic devices remained weak. Those factors combined to contribute to increased inventory at the downstream customers' end and the customers' efforts of destocking are expected to result in a 10% decline in revenues in the global semiconductor market from a year ago. The hit to the memory product market is especially severe, with sales declining around 40% year over year.
Q2: How do you see the semiconductor market demand for 2024?
Smartphones, PCs, and servers are the three major applications for semiconductors. We think smartphone shipment in 2024 is likely to resume positive growth, and PC shipment will see single-digit growth. In 2023, semiconductors for servers have exceeded that for PCs in revenue and became the third-largest application market (behind smartphones and automotive) for semiconductors. We estimate that global server shipment in 2024 is likely to enjoy single-digit growth as well, which is conducive to semiconductor market recovery. DIGITIMES Research projects that smartphones, PCs, and servers demand for semiconductors are likely to account for 40% of total global demand in 2024.
Q3: What are the products to contribute to the other 60% of the market demand in 2024?
The main visible growth momentum comes from the automotive market. Due to the popularity of electrical vehicles and the development of the Advanced Driver Assistance System (ADAS) and smart cockpit, automotive application is taking up a higher percentage of the semiconductor markets. Companies such as NXP and Qualcomm also have collaborated with TSMC, UMC, and GlobalFoundries to develop advanced automotive chips. We anticipate automotive application processors (AP) to see robust growth in the next three years.
Semiconductors used for industrial applications did not see sales decline in 2023, but neither did their growth meet prior expectations. The reason was a weaker-than-anticipated Internet of Things (IoT) market demand. However, we see the potential of a more than 10% rebound in demand for industrial semiconductors in 2024, because the demand for EV charging poles, renewable energy infrastructure, security monitoring systems, and factory automation are rapidly rising. STMicroelectronics, NXP, TI, and analog devices have noticed the tremendous potential of microcontroller units (MCUs) in edge computing. MCUs integrated with AI capabilities are expected to enjoy rapid growth in the next few years.
Q4: Any notable driver of growth in the next 5 years for the semiconductor industry?
The development of generative AI will boost the growth of capital expenditure related to data centers. We anticipate semiconductors used for cloud AI to be the main driver for investment in 2024. Currently, GPUs are the chips used for cloud AI, and some of the cloud service providers are starting to customize their own chips for the purpose of lowering costs and optimizing energy consumption efficiency. For example, Broadcom has been working with Google to develop TPU chips, while most of the customized chips designed by cloud service companies have been manufactured by the foundry of TSMC. Therefore it is fair to say, that GPU and the aforementioned customized chips for cloud services will be the main drivers for sales growth for TSMC in the next five years.
Q5: How about memory? How has it been doing in 2023 and what do you see for its future outlook?
Among the various semiconductor categories, the proportion of memory in the overall market sales fluctuates the most volatile. Memory once accounted for a high proportion of more than 30%, but the proportion will drop to 17% in 2023. As the major memory manufacturers have significantly reduced the capital expenditures and capacity utilization of DRAM and NAND Flash, it is expected that the supply of DRAM and NAND Flash will change from a surplus to a shortage in 2024, which will significantly increase the sales amount and share in the overall semiconductor market (the proportion is expected to increase to more than 20%), but the growth in sales amount is still mainly determined by the growth rate of shipment of smartphones and PCs.
The bright spots of the memory market in the future are the increase in demand for server memory, both for general servers and AI servers, where the demand for DDR or High Bandwidth Memory (HBM) will increase significantly; and in the automotive market, where ADAS and smart cockpit will drive demand for DRAM, NAND Flash, optoelectronic semiconductors for sensing, application processors to outperform other semiconductors.
About the analyst:
Tony Huang is DIGITIMES Research Center consultant and director. He has an MSc degree in Industrial Engineering and Engineering Management from Taiwan's National Tsing Hua University (NTHU). He specializes in the semiconductor industry and the flat panel display industry.
In 2024, the semiconductor sector faces pivotal shifts as demand for silicon wafers varies and global equipment spending adapts. At the forefront of these changes are innovations in High-Performance Computing (HPC) and AI server supply chains. DIGITIMES Asia will spotlight these transformations at the "2024 Next-Gen Intelligence Symposium" on November 3rd, 2023. The event, featuring insights from DIGITIMES' senior analysts Tony Huang and Jim Hsiao along with AI server experts from Supermicro, aims to offer a deep understanding of the evolving tech landscape and Asia's supply chain dynamics.
Register and join us in person at the symposium on November 3rd, 2023, to be part of a pioneering discussion on the AI supply chain and its outlook: https://www.digitimes.com.tw/seminar/DIGITIMESASIA_20231103/
Tony Huang. Credit: DIGITIMES