Analyst drops chip market forecast after 1Q24 “train wreck”

Business news | May 8, 2024

By Peter Clarke

Analog semiconductor silicon Artificial Intelligence

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Malcolm Penn, founder and chief analyst with Future Horizons, has lowered his forecast for global chip market growth in 2024 to 4.9 percent from his previous estimate of 16 percent.

Penn said that he was compelled to make the major adjustment after global chip sales figures “simply crashed” in the first quarter.” Penn asked himself whether the 1Q24 sales were comparable to a “fender bender” car accident or a train wreck and concluded it was the latter. “It’s goodbye to the good times ahead,” he said.

Penn said he had been concerned back in January even as he had given out his 16 percent plus or minus 4 percent growth figure for the market. His concern then was that the recovery was being driven by rises in the average selling prices of chips but without any increase in unit shipments (see Future Horizons sounds warnings over chip market rebound). He told attendees to a market analysis seminar that he now saw that his concerns had been well-placed

“An ASP-led recovery unusual. In fact, it has never happened before in 50 years. The unit growth was not there. Wafer fab capacity utilization rates are mostly in the 70 to 75 percent range. The bulk of the chip market is not Nvidia GPUs and AI applications,” he said.

Even TSMC, which is the master of leading-edge chip production, recently reduced its forecast for the semiconductor industry in 2024 (see TSMC trims semiconductor, foundry forecast for 2024). There is still some hope that AI chips for smartphones and personal computers could stimulate a refresh cycle in consumer electronics spending in 2H24 but Penn expressed scepticism saying in AI in smartphones does not feel like a big deal. It does not make him want to rush out and replace a perfectly adequate phone, he said.

Meanwhile softness in automotive and industrial spending, reflected in the Japanese and European chip markets, is dragging on the market. “We can’t claim a recovery until IC unit growth resumes,” Penn said.

The continued economic and political uncertainty in 2024, together with elections at the end of the year could truncate what has essentially been a short “spreadsheet recovery,” Penn argued. Penn said he now expects to an ASP correction in 2H24.

Common sense and red flags

Penn said that there are some better signs ahead but also some red flags.

The industry is finally cutting back its capital expenditure. Capex peaked in 1Q23 and softer capex is likely to persist all year, he said. That is, unless you are in China where companies are buying every piece of chipmaking equipment they can get their hands on. Of course, much leading-edge chip making equipment is forbidden to them by US export controls, but China is spending heavily on more mature equipment.

“China is just under half of global [semiconductor] capex; 47.2 percent. China’s capex is a serious red flag,” said Penn. He said he expected Chinese chip production to rise by 60 percent over the next three years and to double in five years. “China is gearing up to do exactly the same thing that they have done in electric vehicles, batteries and solar panels; to flood the market and take market share.”

For 2024 Penn said he now expects global chip market growth to be between 3.5 percent on the low side and 8.0 percent on the high side, with 4.9 percent, or a market size of US$553 billion, as the most likely outcome.

Penn is now the most bearish of forecasters with most semiconductor market analysts still forecasting annual growth for the 2024 global chip market of between 13 and 20 percent. John Neuffer, CEO of the SIA, said alongside the publishing of 1Q24 chip market data said that double-digit percentage annual growth is projected for 2024 (see Global chip market growth halted in 1Q24).