New restrictions by the U.S. government will limit the supply of advanced semiconductors to China in the high-performance computing market. As a result, Chinese technology companies must now work with local chip vendors to ease the effects of export bans. Other trends will impact global demand.
Global semiconductor revenue is projected to decline by 11.2 percent in 2023, according to the latest worldwide market study by Gartner. In 2022, the market totaled $599.6 billion, which was marginal growth of 0.2 percent from 2021.
The short-term outlook for the semiconductor market has deteriorated further. Global semiconductor revenue is forecast to total $532 billion in 2023.
Semiconductor Market Development
"As economic headwinds persist, weak end-market electronics demand is spreading from consumers to businesses, creating an uncertain investment environment. In addition, an oversupply of chips which is elevating inventories and reducing chip prices, is accelerating the decline of the semiconductor market this year," said Richard Gordon, vice president at Gartner.
The computer memory industry is dealing with overcapacity and excess inventory, which will continue to put significant pressure on average selling prices (ASPs) in 2023. The memory market is projected to total $92.3 billion -- that's a decline of 35.5 percent in 2023.
However, according to the Gartner assessment, it is on pace to rebound in 2024 with a 70 percent increase in market growth.
The DRAM market will witness significant oversupply for most of 2023 due to weak end-equipment demand and high inventory levels despite flat production by DRAM vendors.
Gartner analysts foresee DRAM revenue will decline 39.4 percent in 2023 to a total of $47.6 billion. Moreover, the DRAM market will move to undersupply in 2024 and DRAM revenue is set to increase 86.8% as pricing rebounds.
Over the next six months, Gartner expects the dynamics for the NAND market will be similar to the DRAM market. Weak demand and significant vendor inventory will create oversupply resulting in strong price declines.
As a result, NAND revenue is projected to decline 32.9 percent to $38.9 billion in 2023. In 2024, NAND revenue is projected to increase by 60.7 percent due to a deep supply shortage.
"The semiconductor industry is facing a number of long-term challenges in the decade to come," said Gordon. The past decades of high volume, high-dollar content market drivers are coming to an end, notably in the PC, tablet, and smartphone markets where technological innovation is lacking.
In addition, COVID-19 and the U.S. and China trade tension have precipitated the deglobalization trend and the rise of techno nationalism. Semiconductors today are seen as a national security issue.
Governments around the world are scrambling to build self-sufficiency in the semiconductor and electronics supply chain. This is leading the incentivization of onshoring initiatives across the world.
Meanwhile, the PC, tablet, and smartphone semiconductor markets are stagnating. This should drive down the cost of these devices due to bloated inventories across wholesale and retail channels.
The combined markets will represent 31 percent of semiconductor revenue in 2023 and total $167.6 billion. These high-volume markets have saturated and become replacement markets devoid of compelling technology innovation.
In parallel, both the automotive and industrial, military, or civil aerospace semiconductor markets will achieve growth. The automotive semiconductor market is forecast to grow 13.8 percent, reaching $76.9 billion in 2023.
Outlook for Semiconductor Market Growth
In the future, there will be many more but smaller end markets. End markets will be more fragmented, with pockets of growth coming from multiple different sectors in the automotive, industrial, IoT, and military or aerospace sectors.
"End-market demand will be less exposed to consumer discretionary spending and more exposed to business capital spending," according to Gordon.
Supply chains will be more complex with many more intermediaries involved and varied channels to market, and to satisfy different end-market requirements, different types of capacity will be required.
That said, as part of the bipartisan CHIPS and Science Act, the Department of Commerce is overseeing $50 billion to revitalize the U.S. semiconductor industry, including $39 billion in semiconductor incentives. What are the implications of recent market volatility? We'll have to wait and see.