Malcolm Penn, founder and analyst of Future Horizons, has revised down the global chip market growth forecast for 2024 from the previous 16% to 4.9%.
Comparable, and he concludes it’s the latter. "It’s a farewell to the good times ahead," he says.
Penn states that although he announced market growth data of 16% plus or minus 4% in January, he has been concerned about it all along. He was worried then that the recovery was driven by an increase in the average selling price of chips but with no increase in unit shipments. He further points out that unit shipments remain flat, and without new demand, a full recovery cannot proceed.
Another point Penn makes is that the current surge in chip market growth is a result of comparing it with the market weakness at the beginning of 2023. This comparison will start to ease off in 2H24. He believes that the automotive and industrial markets have rebuilt their inventories, and fundamental demand is now being driven by still uncertain global economic prospects. Penn also suggests that it's too early to anticipate the start of a replacement cycle for consumer electronics in 2024.
He tells attendees at a market analysis seminar that he now finds his concerns justified.
"The recovery driven by ASP is unprecedented. In fact, it has never happened in 50 years. There is no unit growth. Wafer fab utilization rates mostly range from 70% to 75%. Most of the chip market is not Nvidia GPUs and AI applications," he says.
Even TSMC, the master of chip production, has recently revised its forecast for the semiconductor industry in 2024 downward. While there is still hope for AI chips in smartphones and personal computers to stimulate a replacement cycle for consumer electronics spending in 2H24, Penn expresses skepticism, saying that AI in smartphones doesn’t seem like a big deal.
Currently, soft automotive and industrial spending reflected in the chip markets of Japan and Europe is dragging down the market. "We cannot claim an economic recovery until IC unit growth resumes," he says.
Penn believes that ongoing economic and political uncertainty in 2024, coupled with year-end elections, could shorten the essentially transient "spreadsheet recovery." Penn suggests he now expects an adjustment in average selling prices in 2H24.
The industry has finally cut back on capital expenditure. He states that capital expenditure peaked in the 2023 quarter, and soft capital expenditure could continue for a whole year. That is unless you're in China, where companies are buying every chip-making device they can get their hands on. Of course, US export controls prevent them from using many chip-making devices.
"China accounts for less than half of global (semiconductor) capital spending, namely 47.2%. China's capital spending is a clear signal," Penn says. He predicts that China's chip production will grow by 60% over the next three years and double in five years. "China is preparing to do exactly what they did in electric vehicles, batteries, and solar panels; flood the market and grab market share."
Penn now anticipates that the market growth rate in 2024 will be between 3.5% on the low end and 8.0% on the high end, with a probable outcome of 4.9%, reaching a market size of $553 billion.
Penn is now a pessimistic forecaster, with most semiconductor market analysts still predicting annual growth rates for the global chip market in 2024 between 13% and 20%. John Neuffer, CEO of the SIA, while releasing quarterly chip market data for 2024, also predicts double-digit annual growth rates for 2024.
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