Deloitte released its 2024 Global Semiconductor Industry Outlook, an in-depth analysis of the sector’s resurgence, led by the advent of generative AI but complicated by geopolitical factors.
According to the report, the infamously cyclical semiconductor industry had a challenging year in 2023, the seventh downturn since 1990, with sales expected to be down 9.4% (to US$520 billion) for the year. But that’s not as bad as was expected in the spring; before a relatively stronger second and third quarters were in the books, the previous forecast had been for US$515 billion. 2024 is now predicted to see global sales of US$588 billion. Not only would that be 13% better than 2023, but it’s 2.5% higher than 2022’s record industry revenues of US$574 billion.
As is so often the case, the memory chip market was the biggest swing factor. In 2022, memory sales were almost US$130 billion, or just under 23% of the overall chip market, but they dropped 31% (about US$40 billion) in 2023. The market is expected to get almost all of that back in 2024, with sales expected to reach 2022 levels. If we exclude memory, the rest of the industry was down in 2023, but only by about 3%.
In terms of end markets, both PC and smartphone sales are expected to grow 4% in 2024, after 2023 declines of 14% and 3.5%, respectively. Returning to growth for these two end markets is likely important for the semiconductor industry: In 2022, communication and computer chip sales (which include data center chips) made up 56% of overall semiconductor sales for the year.
Two other important measures of the industry’s health are inventories and fab utilization. As of fall 2023, inventories remained high at more than $60 billion, about the same level as the previous year. And the process of drawing those down will be a significant headwind for sales in the first half of 2024. In addition, utilization was high during the recent shortage (in the mid-90% range) and is expected to fall below 70% in Q4 2023. The industry likely needs utilization to be much higher than that to be profitable, which could take some time.
The report delves into five key components of the semiconductor market:
- Focus on Generative AI: Looking ahead to 2024, the gen AI chip market is strong; it is expected exceeded $50 billion in sales, about 8.5% of the industry’s total sales, despite representing less than 0.1% of actual chips sold in 2023. The report provides insight into gen AI accelerator chips, the need for more assembly and test capacity, and the heightened risk of cyberattacks on the chip industry’s IP.
- Smart Manufacturing Gets Smarter: The semi-industry will be positively impacted by smart manufacturing. Highly advanced AI tools, including gen AI, will be used to analyze large datasets and will transform business. Fabs can improve cost management, simulate and analyze energy consumption, enhance efficiency and streamline facility management by using smart manufacturing tools.
- More Chip Assembly and Testing Moving to U.S. and Europe: China and Taiwan were home to roughly 80% of the Outsourced Semiconductor Assembly and Test (OSAT) market share in 2022, but the U.S. and Europe want to expand their domestic chip fabrication capacity.
- Intensifying Cyberthreats: Cyberattacks may intensify in the semi-industry in 2024 and disrupt production. Bolstering cybersecurity through strategy, cyber cloud, data protection and AI could help combat these threats.
- Geopolitical Considerations: A key area of focus this year is the impact of export restrictions on advanced manufacturing equipment and technologies, including gen AI chips.