MARKET OVERVIEW What 2024 has in store for the semiconductor industry

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After a slump at the start of 2023, the semiconductor industry looks set to recover and enter a new phase. The increasing demand for generative AI accelerator chips will reinvigorate the sector but changing geopolitical conditions could be problematic. We take a closer look at the current state of the semiconductor market and what the short-term future might hold.

To say that 2023 was a turbulent year for the semiconductor industry would be an understatement. Typically, a highly volatile sector with an inherently cyclical nature, the semiconductor market gave companies and investors a wild rollercoaster ride throughout 2023. The worldwide chip shortage that began in 2018 and was exacerbated by the Covid-19 pandemic continued into 2022 and 2023. As demand rose, producers went into overdrive. Production went up, but major players like TSMC sent out warnings not to double order as a downturn looked likely.

Semiconductor fabrication plants can’t quickly raise or lower production rates, so when the market declined as expected, manufacturers were faced with a glut. This resulted in some of the biggest names in the industry posting major losses in the first half of 2023. TSMC, Intel, Samsung, and others all took a severe beating. As the year progressed, manufacturing cuts came into effect and the production rates stabilized. Most of the major semiconductor companies were able to ride out the worst of the bullwhip effects and posted earnings more or less in line with industry predictions.

What will 2024 bring for the semiconductor giants? Will advances in technology continue to drive the recovery or will the industry face obstacles to growth? Only time, as the saying goes, will tell. Analysts do, however, have some insights into what we might expect from the 2024 semiconductor industry.

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The outlook for the 2024 semiconductor industry

With advances in generative AI, a renewed smartphone industry, and high demand from the automotive industry, 2024 looks like it will be a much better year than the last for the semiconductor sector.

KPMG has given 2024 a Semiconductor Industry Confidence Index score of 54. Lower than the 56 accorded to 2023 and also lower than scores allocated to each of the previous five years, but still a positive outlook. According to Gartner, the semiconductor industry is expected to grow by 16.8 % during 2024 and could reach a total of US $624 billion by the year’s end. Gartner also expects that the worldwide demand for memory chips will expand by 66.3 % in 2024. The World Semiconductor Trade Statistics (WSTS) is somewhat more reserved, predicting a 13.1 % growth in semiconductor sales and a 40 % increase in demand for memory chips.

Other industry analysts point to an expected growth in the Asian and American markets for discrete semiconductors, logic semiconductors, sensors, analog semiconductors, and micro semiconductors. Markets for analog and mixed-signal semiconductors are expected to grow at a slower rate, despite increased demand. This prediction is based on the longer shelf-life of these products.

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Predicted semiconductor trends for 2024

Semiconductor production levels are expected to increase dramatically as China, the US, and Europe all push to increase their global market share and secure their supplies of semiconductors.

High demand in 2024 is likely to be driven by the need for generative AI accelerator chips and logic processors made using advanced high bandwidth memory (HBM3). AI chips are incredibly expensive, so although they will make up a large part of the revenue stream, they represent only a small portion of overall production.

As the automotive industry continues with the electrification and computerization of its vehicles it will again require large numbers of semiconductors. Just as it was in 2023, the auto industry is expected to be a major source of revenue in 2024 for semiconductor manufacturers.

AI and machine learning technology are going to become more mainstream throughout 2024 which will lead to a huge rise in the need for Cloud-based data centers. There is expected to be a much wider industrial application of Edge computing technology and the Internet of Things (IoT). The consumer market for PCs and smartphones is also rising steadily. All of these factors are sure to keep semiconductor demand high throughout 2024.

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Everything seems quite optimistic, but there are some dark clouds on the horizon to be wary of. While the conflict between Russia and Ukraine hasn’t strangled supply chains, the relationship between the US and China could pose a major problem. The ongoing chip trade war between the US and China is narrowing markets and causing supply chain issues. More worryingly, if China invades Taiwan the negative impact on the global semiconductor market would be immense. Another geopolitical aspect to watch out for is the use of AI in electronic weapons and surveillance tools. Countries are investing heavily in onshore or near-shore semiconductor production as they seek to gain the lead in these areas. This could cause disruptions to the semiconductor industry as political tensions restrict supply.

So-called ‘billion-dollar weather events’ as the result of climate change could result in more natural disasters, causing damage to or the outright destruction of production facilities and severely interrupting supply routes.

Finally, the human element may cause difficulties for semiconductor companies. Acquiring and keeping talented technicians continues to be a problem for semiconductor manufacturers. As production expands globally, the competition for highly skilled workers is going to increase as the talent pool decreases.

If manufacturers can monitor geopolitical tensions, react to mitigate the damage caused by natural disasters, and find enough people to keep their production levels steady, then we could see revenues attaining higher than expected levels. Whatever transpires, 2024 is most certainly going to be another eventful year for the semiconductor industry.

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