Market Analysis

Weak demand leads to declining quarter for semiconductor market

In the first quarter of 2024, the semiconductor market saw a decline of approximately 2%, falling to $151.5bn, as reported by Omdia’s new Competitive Landscaping Tool.

This downturn is typical for the first quarter, which generally follows a strong fourth quarter driven by seasonal demand, often resulting in a 4.4% revenue drop.

Most segments within the semiconductor market faced declines during this period. The consumer segment experienced the most significant decrease, dropping 10.4% from the fourth quarter of 2023, while the industrial segment saw an 8.5% decline due to inventory adjustments. Even the automotive segment, which had shown steady growth for years, saw a 5.1% decline in the first quarter of 2024.

However, these declines were somewhat offset by growth in the data processing division, which increased by 3.7% due to ongoing high demand for NVIDIA’s chips and other AI-related products. NVIDIA continued its strong growth trajectory, expanding its market share by over two percentage points to now represent 14.5% of the total semiconductor market revenue. This growth allowed NVIDIA to surpass traditional semiconductor leaders Samsung and Intel, who together hold 18.6% of the market revenue. The resurgence in memory growth also saw SK Hynix and Micron rise in their market share rankings.

The automotive sector, which had initially resisted the semiconductor market growth triggered by the COVID-19 pandemic, eventually succumbed to decline but had quickly recovered. After 13 consecutive quarters of revenue growth starting in the third quarter of 2020, the automotive segment experienced a slight downturn of 0.6% in the fourth quarter of 2023. However, the decline deepened in the first quarter of 2024, with a more substantial drop of 5.1% from the previous quarter. This downward trend reflects a broader deceleration in the demand for cars, with the growth rate of electric vehicles tapering off in recent quarters, prompting a recalibration in semiconductor demand. Despite these challenges, the automotive semiconductor market remains a promising long-term growth area, poised to rise over the next five years.

Omdia’s Global Semiconductor Manufacturing Market Tracker (GMMT) and the Pure Play Foundry Tracker (4Q23 reports) indicate that combined factory utilisations (IDM + Foundry) reflect the overall trend within the semiconductor industry. After peaking during the early stages of the COVID-19 era in 2022, utilisation rates plummeted in the second half of 2022 due to a significant softening in demand and record-high inventory levels. Despite semiconductor revenue growth throughout 2023, fab utilisation rates remained in the low 80% range.

Omdia Chief Analyst Craig Stice said: “Utilisation rates began a slight uptick in 2H23 as the market began seeking equilibrium. However, it has yet to materialise as traditional demand patterns have not fully emerged. Demand will continue to improve in 2H24, which should lead to inventory corrections consequently driving up factory utilisation rates once again.”