Strong headwinds

After recovering from its worst recession in 2019 (-13%), the semiconductor industry entered a turbocharged growth cycle in 2020. Volumes were driven by unusually strong demand for consumer electronics (PCs, smartphones, audio and video equipment, accounting for 80% of final semiconductor sales); prices were pushed higher by a tight supply/demand equilibrium and the product mix improved with the introduction of higher priced, new-generation chips using the 5nm manufacturing node. The same three drivers have now reversed, with consumer electronics deep in the red, rising inventories sending prices down and next-generation chips only in their ramp-up phase. After growing by a record +24% in 2021 and slowing to +8% in 2022, we anticipate global semiconductor sales to fall by as much as -15% to USD495bn in 2023. In our scenario, monthly sales would bottom out in Q3 2023 but a strong recovery would be hampered by weak final demand for consumer electronics.

On top of the industry’s inherent boom-and-bust nature, we believe renewed tensions in the so-called US-China tech cold war are another major risk factor. The previous US administration implemented a series of regulations to prevent Chinese companies from acquiring critical US semiconductor manufacturing technologies and equipment. After an apparent truce between both countries, the US passed new pieces of legislation to further slow down China’s progress in semiconductor manufacturing by adding restrictions on exports of key technologies to a growing list of Chinese players.

Reflecting its growing economic and strategic significance, the industry will benefit from substantial financial incentives to expand its R&D and manufacturing activities in Europe and North America in coming years. While we do not expect such moves to challenge Asia’s domination in semiconductor manufacturing in the short term, they will most likely contribute to more balanced trade flows in a more distant future.