The anticipated semiconductor supercycle of growth has not so much hit the train buffers as demolished the entire station.
From riding high on three consecutive quarters of growth to round out 2023, the market went into reverse posting a -5.7% decline in Q1 2024 a decline of 8.4% on Q4 2023, revealed Malcolm Penn, CEO of Future Horizons semiconductor research outfit.
This setback has forced Penn to drastically reduce his original 16% growth forecast for the semiconductor industry in 2024 to 4.9% wiping $10 billion from his forecast. His bear scenario paints a bleaker picture of 3.5% growth. Penn’s bull scenario for 2024, for which he offered no great confidence, came in at 8.8% growth.
Penn says slower end market demand for products including smartphones and electric vehicles means excess inventory is taking longer to be dissipated and being exacerbated by long-term price agreements from the post-Covid market boom. A slowdown in demand due to inflation and higher interest rates has blighted consumer and business spending.
More fundamentally, last year’s market growth driver was a ‘wrong ‘un’. For the past 40 years, units shipped has propelled semiconductor market growth. Not this time.
“The recovery in market value was driven by an IC average selling price (ASP rebound in Q2 2023,” Penn explained. “It’s never happened before, and IC unit growth has yet to recover.”
Unit shipments are 14% below the long-term trend line of 10% annual growth.
“Watch out for IC ASP growth rates to crash in mid-2024,” he summarised. “It’s hard to call a market recovery when unit demand is in the doldrums.”
Unveiling his 16% growth forecast in January Penn was cautious about prospects, expressing concern about the ASP-driven spreadsheet recovery versus a real recovery based on unite demand increases.
“We make and sell units not dollar bills, that’s the government’s job,” stated Penn.
Semiconductor manufacturers are now taking a more prudent approach to capital expenditure.
