Semiconductor industry 2023
In 2023, the semiconductor industry experienced another cyclical downturn, with sales dropping by 9.4% to $520 billion, marking the seventh decline since 1990. Global sales in 2024 are expected to reach $588 billion, representing a 13% increase over 2023 and a 2.5% increase over the record revenues of $574 billion in 2022.
Semiconductors are integral to modern life, embedded in numerous devices that shape our daily experiences. Although they may not be widely recognized by the average person, semiconductors are present in everyday technologies, from air conditioners and personal computers to smartphones, cameras, and even household appliances like washing machines and refrigerators. They are also critical in more complex systems like ATMs, trains, medical equipment, and internet infrastructure. The automotive industry increasingly relies on semiconductors, particularly in Advanced Driver Assistance Systems (ADAS), to enhance safety and efficiency.
As usual, the chip market played a key role in the semiconductor sector in 2023. While chip sales reached nearly $130 billion in 2022, accounting for almost 23% of the total market, they fell by 31% in 2023, a drop of approximately $40 billion. The market is expected to almost fully recover in 2024, reaching the 2022 levels. Other segments of the semiconductor industry saw only a 3% decline in 2023.
Although chips for generative artificial intelligence are expected to be a significant part of semiconductor revenues in 2024 (and likely even more in the future), their share of the total volume of chips produced and manufacturing capacity remains relatively small. With current industry utilization below 70%, the strong demand for these chips is great news for a few companies that sell them, but it may not have the same positive impact on the entire industry.
In the long run, it is projected that sales of AI chips could reach $400 billion by 2027. In 2024, Deloitte estimates that sales of chips for generative AI will exceed $50 billion. On the other hand, there are reasons to believe that the growth in sales of these chips could slow down or even temporarily decline in some quarters due to:
- New players: New chips from both existing and new AI chip manufacturers are entering the market, including companies previously known as customers, but now beginning to manufacture their own chips.
- New architectures and models: Various AI models and chip architectures will target specific uses, from data centers to edge computing, with billions of dollars in investments.
- Edge chips: It is expected that more processing will be done on smaller and cheaper accelerators in 2024.
- Bullwhip effect: The chip market may be prone to over-ordering and excess inventory, which could lead to a decline in sales and prices in the second half of 2024.
- Willingness to pay for AI: If customers are unwilling to pay for AI services, companies may reduce their orders for AI chips, which could impact the entire market. Deloitte predicts an increase in software company revenues by $10 billion by the end of 2024.
Semiconductors are made from materials like silicon, which can act as both a conductor and an insulator depending on the circumstances. By altering the atomic structure of these materials, manufacturers create components like transistors, which are essential for amplifying signals in devices such as computers and smartphones. This unique ability to control electrical flow is why semiconductors are the foundation of modern electronics, helping to power the reliable and energy-efficient technologies we depend on daily.
Sources:
Deloitte - 2024 global semiconductor industry outlook: https://www2.deloitte.com/us/en/pages/technology-media-and-telecommunications/articles/semiconductor-industry-outlook.html
Precision Electronic Glass, Semiconductors are a Major Part of Our Daily Lives, 2024, https://pegglass.com/semiconductors/
Images: Shutterstock, Deloitte, Precision Electronic Glass