Semiconductor Industry Update: Fair Winds and Following Seas!

Malcolm Penn did a great job on his semiconductor update call. This is about the whole semiconductor industry (Logic and Memory) versus what I track which is mostly logic based on design starts and the foundries. Malcolm has been doing this a lot longer than I have and he has a proven methodology, but even then, semiconductors are more of a rollercoaster than a carousel so predictability is a serious challenge.

Malcolm feels that we are at the bottom of the downturn after the pandemic boom. He calls it the Golden Cross Breach which will lead to a good term of growth. The Golden  Cross breach is when the green 3/12 curve breaches the blue 12/12 curve. Again, this is memory and logic. Inventory is a much bigger factor with memory and that is a big part of hitting bottom, depleting excess inventory from the pandemic shortages scare.

Remember, at the end of 2023 forecasters suggested double digit growth for 2024. TSMC also predicted a double digit industry growth (10%) and a TSMC revenue growth of more than double the industry growth. Today TSMC is at a 30% revenue increase and I see that continuing the rest of the year with 2025 being even better when more customers hit N3 HVM, absolutely.

Unfortunately, after the new year the semiconductor industry crashed going from a +8.4% growth rate in Q4 2023 to a -5.7% growth rate in Q1 2024 sending the forecasters back to the magic 8-ball for revised predictions. Q2 2024 came back with a vengeance with a +6.5% growth rate giving forecasters a whiplash. We have been very forecast positive since then with a double digit revenue growth for 2024.

Malcolm’s forecasting formula looks at four things:

As Malcolm explained, the economy determines what we can buy. This means consumers and suppliers (CAPEX). Unit shipments is critical in my opinion because that is what we actually buy but that number depends on inventory in the financial forecasting sense. According to Malcolm we still have excess inventory right now which is still liquidating. Unit shipments is a big indicator for me, much bigger than ASPs, which are the prices we sell chips for (supply versus demand). Given the AI boom and the excessive GPU prices (Nvidia) this number is artificially inflated in my opinion. Fab capacity is also a big one for me. The semiconductor industry generally runs with fab utilization averaging 80%-90%. During the pandemic, orders were cancelled then restarted again so some fabs rebounded with 100%+ utilization then fell back to 60-70%. Today I have read that average capacity utilization is hedging back up to 80%-90% which I believe will be the case for the rest of 2024 and 2025.

My big concern, which I have mentioned in the past, is over capacity. If you look at the press releases in 2022 and 2023 the fab build plans were out of control. It really was an arms race type of deal. I blame Intel for that since the IDM 2.0 plan included huge growth and fab builds and the rest of the foundries followed suit. We also have re-shoring going on around the world which is more of a political issue in my opinion. Reality has now hit so the fab builds will scale down but China is still over spending (more than 50% of the total world wide CAPEX) on semiconductor equipment. Malcolm covered that in his update in more detail.

Moving forward Malcom updated his forecast for 2024 to 15% growth for the semiconductor industry and 8% growth in 2025. We will hear from other forecasters in Q3 but I would guess that they will follow Malcolm’s double digit number this year and back down to the normal semiconductor industry single digit growth for 2025, absolutely.

Malcolm’s presentation had 50+ slides with a Q&A at the end. For more information give him a ring:

Future Horizons Ltd
Blakes Green Cottage
Sevenoaks, Kent
TN15 0LQ, England
T: +44 (0)1732 740440
E: mail@futurehorizons.com
W: https://www.futurehorizons.com/

Also Read:

Robust Semiconductor Market in 2024

Semiconductor CapEx Down in 2024, Up Strongly in 2025

Automotive Semiconductor Market Slowing

2024 Starts Slow, But Primed for Growth

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