January 16, 2024

Semiconductor Market Trends and How They Will Impact the 2024 Market

Datalynq Team
An image of chips on a completed and exposed chip board

2023 was a tumultuous year for the electronic component industry and the global economy. The startling drop, though expected as TSMC warned clients in early 2022 not to double order in the face of a future downturn, still caught many off guard. Since it takes time to lower production capacity at semiconductor fabrication plants, the sharp decline in consumer demand fed into excess inventory’s exponential rise.  

Over the past year, inflation, geopolitical conflicts, energy crises, and extreme weather have complicated supply chain recovery. The bullwhip from shortage to glut resulted in an industry-wide system shock, with many manufacturing leaders, such as TSMC, Samsung Electronics, Intel, and more, posting massive losses in the first half of 2023. As the year went on and strategic production cuts took effect, organizations were able to limit the more significant blows.  

Last year was not bad for everyone within the electronic component industry. In late 2022, OpenAI released ChatGPT, large language models (LLMs), and generative artificial intelligence (AI) took off. Over 2023 companies, including Microsoft, Google, Amazon, and Intel, worked overtime to develop their ChatGPT equivalents.

Nvidia, the manufacturer of graphic processing units (GPUs) used to power LLMs like ChatGPT, Microsoft’s Bing, Google’s Bard, and others, skyrocketed into the trillion-dollar club. While memory giants Samsung Electronics, SK Hynix, and Micron Technology grappled with falling DRAM and NAND flash prices, Nvidia components faced bottlenecks from high demand. TSMC, the manufacturer of advanced packaging for Nvidia’s coveted GPUs, struggled with constraints. At the same time, TSMC delayed the production of some advanced semiconductor lines due to poor demand in the consumer electronics market.  

Experts see changes in the electronic component market coming in 2024, but old problems that haunted 2023 remain.

Artificial Intelligence Continues to Lead Recovery

Artificial intelligence is not going away anytime soon. Some experts have debated whether AI will “live up to the hype,” comparing it to the metaverse with its initial excitement and decline. The key difference between the technologies is that the current subset of AI gaining popularity, LLMs and generative AI, have already created disruption and been implemented across industries compared to the metaverse–where its absence hasn’t sparked any significant notice. The current funding and technological development around AI will only improve efficiency and expansion.  

Whether the current fascination with implementing AI in corporate tech workflows is a trend or not, its popularity will remain high through 2024 and beyond. According to SEMI’s World Fab Forecast report, the total wafer capacity in 2024 will increase by 6.4% to 30 million wafers per month (WPM). This is a 5.5% rise from the 29.6 million last year. This growth is driven by “leading-edge foundries and applications, including generative AI and high-performance computing (HPC), which will lead to a recovery in chip demand.”

This forecast isn’t held by SEMI alone. In December, Gartner forecasted that the semiconductor market would return to growth this year, citing the ongoing interest in AI as a boost, especially for memory components like DRAM and NAND.  

That said, recovery won’t come overnight. During the second half of 2023, SK Hynix and Samsung Electronics continued to suffer from losses, but at a noticeable decrease in comparison to the beginning of the year. Artificial intelligence softened some of the blows low consumer demand had on the electronic component industry, but it did not solve the problem of excess inventory. While SK Hynix and Samsung Electronics mentioned in late 2023 that the clues of recovery were officially beginning, the market was still at rock bottom.

For the first half of 2024, excess inventory will continue to be a problem for some industries. Proper industry-wide recovery and general market growth will come in the second half of 2024. Artificial intelligence demand will pave the way, as it has done through 2023, but for now, it will take a few more tough months to reach the other side.  

The best thing original equipment manufacturers (OEMs), contract manufacturers (CMs), and electronic manufacturing service (EMS) providers can do now, if still grappling with excess, is to sell it on a global e-commerce site to gain the maximum cash return.  

Increased Number of Fabs Worldwide

Since the global semiconductor shortage, governments worldwide have prioritized semiconductor manufacturing resiliency for the coming decade. China, the United States, the European Union, India, and more have poured billions into different incentive plans to attract top semiconductor manufacturing talent and expand existing domestic facilities. Due to these efforts, global semiconductor capacity is projected to reach a record high in 2024.  

Thirty million WPM is the new forefront of semiconductor capacity, exceeding 2023 after capacity expansion slowed due to soft semiconductor demand and inventory correction. SEMI’s President and CEO, Ajit Manocha, said that “resurgent market demand and increased government incentives worldwide are powering an upsurge in fab investments in key chipmaking regions…The heightened attention on the strategic importance of semiconductor manufacturing to national and economic security is a key catalyst of these trends.”

SEMI’s World Fab Forecast shows that the semiconductor industry plans to begin the operation of 82 new volume fabs. This includes 11 projects from 2023 and a massive 42 projects in 2024, with wafer sizes ranging from 300mm and 100mm. Many of these new facilities are in China, with 18 new projects beginning operations in 2024. This is a 13% year-on-year (YoY) rise in capacity in 2024 to 8.6 million WPM. Taiwan, Korea, the U.S., the EU, the Middle East, and Southeast Asia are all expected to increase their domestic WPM throughout 2024.  

Likewise, the foundry segment is expected to rank as the top semiconductor equipment buyer, increasing capacity to 10.2 million WPM this year.  

More good news is coming to the memory market, with DRAM expected to increase capacity by 5% or 4 million WPM in 2024. Discrete and analog components also expect growth this year thanks to vehicle electrification driving its market. Discrete capacity will increase by 7% or 4.4 million WPM in 2024, while analog will see a rise of 10% or 2.4 million WPM this year.  

Memory Chips Will Support Market Demand After AI

Despite the poor last year, market analysts believe that the semiconductor market stands at the forefront of technological innovation. As a result of the burgeoning electronic devices, 5G, AI, and the Internet of Things (IoT) are giving the industry plenty of growth opportunities. In its latest report, SNS Insider anticipates that the compound annual growth rate (CAGR) will be 9.16% between 2023 and 2030.

This year, the global semiconductor market is expected to grow 13.1% in 2024 and reach a record of $588.36 billion after the slump. Should expectations be met, the billings market size will exceed the $574.08 billion achieved in 2022. The market decreased an expected 9.4% in 2023 due to weak memory chip demand.  

Thanks to the widespread use of generative AI, the optimistic outlook for this year comes from the improving sales for PCs and smartphones. According to the Worldwide Semiconductor Trade Statistics (WSTS), this year's significant growth will be mainly driven by the memory sector, which is set to reach approximately $130 billion in 2024, a whopping 40% increase from 2023. Additionally, all regional markets are expected to grow, with the U.S. and Asia Pacific markets showing promise for double-digit increases in 2024 YoY.  

The International Data Corporation (IDC) is optimistic about U.S. market resilience in demand and China’s commerce recovery by the second half of 2024, leading to a possible, if things are as positive as IDC predicts, 20.2% YoY in 2024. Considering the growth opportunities this year, thanks to AI and recovering market demand, that could become a reality.  

However, that might be a challenge if the electronic component supply chain faces further disruption during its fragile transitional stage.  

Global Geopolitics Could Heighten Tensions and Contribute to Constraints

One major problem standing in the way of the IDC’s optimistic outlook for 2024 is the ongoing geopolitical volatility worldwide. Tension between Taiwan and China has contributed to the rise of alarming headlines over the last year. Growing pressure between the two countries could become a primary hotspot in 2024, according to predictive insights firm Everstream Analytics.

In their recent risk report, Everstream said that additional policies are “lined up to limit exports from semiconductors, adding that any escalation, whether cyberattacks, a naval blockade, military drills, or a full-scale invasion [of Taiwan], would provide to be devastating to the global supply chain.”  

Should the latter occur, Taiwan’s 38.9% of the world’s share of semiconductors would take three years to replace. Furthermore, the ongoing trade war between China and the United States over the last year has complicated matters. Sanctions and export controls have led companies in both countries to locate new suppliers to avoid growing occurrences of these disruptions. Over 2023, when the U.S. placed restrictions on some advanced semiconductors, specifically those utilized in artificial intelligence, Nvidia worked to develop new products that could get around these restrictions. In response, the U.S. tightened those regulations further to try and stifle such attempts.  

As a result of these restrictions, Everstream predicts that investment in semiconductor facilities in the coming decade will shift toward the U.S.

Outside of Taiwan, the war in Ukraine and the Israel-Hamas conflict are proving to be significant disruptions for logistics and natural resources. The devastating loss of life has been nothing short of unthinkable, and we can only hope that a peaceful end to both will occur soon.  

Europe is working itself back to normal in energy after Russia cut off most of its gas supply to the EU. The dramatic cause-and-effect on energy prices is slowly being adjusted, but inflation remains in some areas. Natural resource shortages in the European Union are ongoing, but the U.S. is working overtime to help get Europe back in a good position energy-wise. The European Union is giving its energy system a major overhaul, which should make a difference in the coming years.  

The Red Sea crisis has led many logistics companies to reroute shipments to avoid the Suez Canal. The financial impact has, as of now, been limited, but experts warn it could “become painful if Huthi attacks keep throttling traffic through the main maritime artery connecting Europe and Asia.”

Barron’s reported that Danish shipping giant Maersk said Friday it would “divert all vessels away from the Red Sea for the foreseeable future,” citing the highly volatile situation, which has driven up insurance costs. Many companies have already opted for the “far longer route around Africa's Cape of Good Hope.”

So far, governments and companies are working around the conflicts well enough that it hasn’t impacted analysts' optimism. Yet, the unpredictable weather could aggravate these disruptions and lead to a more significant problem.

Extreme “Billion-Dollar Weather Events” Will Continue to Disrupt the Supply Chain in 2024

The last few years have been marked by extreme weather events and their impacts on the global supply chain. Everything from harsh winter storms and devastating earthquakes has led to shuttered semiconductor facility operations. During the 1980s, the United States experienced “billion-dollar weather events” every four months. According to Everstream, this occurs globally every three weeks, contributing to the persistence of the “Era of Extremes.”

Billion-dollar weather events are simply when a natural disaster accrues more than a billion dollars in damages. Hurricanes, wildfires, droughts, tornados, and flooding are cited as the most damaging weather events with hurricanes being the most likely to quickly cause billions in destruction. In 2023, 28 separate weather and climate disasters resulted in over a billion dollars in damages per event in the United States alone.

In Panama, a December drought–the country’s worst since the record began in 1950–led to draft height restrictions and daily vessel transit limits worsening. This is greatly impacting the wait times for most shipping operators, rising to become a top logistics disruptor for the global supply chain.  

In Japan, New Year’s Day began with a deadly 7.6 magnitude earthquake, leading to thousands of evacuations and concerns over possible landslides in the coming days. Many semiconductor manufacturers in Japan believe the damage is minimal, but building examinations will be conducted to ensure safety, delaying production.  

Global water temperatures are at record highs this year as El Niño in the Pacific feeds impactful storms on the west coast of the Americas. As the El Niño climate pattern nears its peak, echoing 2016, 2024 is expected to be even hotter than 2023, recorded as the hottest year since 1850 and possibly in the last 100,000 years. Elsewhere, severe winter storms are rocking towns with freezing temperatures as warmer ocean water disturbs these hectic atmospheric rivers.  

With 2024 gearing up to echo 2023, if not worse, OEMs, CMs, and EMS providers need to leverage digital tools that can alert organizations upcoming disruptions.

Keep an Eye on Disruptions with Datalynq

This year will be full of opportunities and challenges. To remain aware of all changes in the supply chain, it is pertinent to use a tool that can warn users of possible disruptions such as obsolescence, sole source components, and end-of-life (EOL) notifications ahead of time.  

Datalynq uses historical market data and real-time information to score over a billion electronic components on their design risk, multi-source availability, market availability, inventory, and price trends. This information is gathered from Datalynq’s sister site under Sourceability, Sourcengine, the leading e-commerce site for global electronic components where users can buy needed parts and sell unwanted excess.  

2024 will be another year filled with ups and downs, and Datalynq will help organizations take advantage of opportunities while proactively strategizing to avoid future challenges with predictive analytics. Learn more from our experts here.  

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