Semiconductor Collapse Runs Slightly Behind Schedule

Partial view of a graph, only showing a dashed straight black line, a red bump above, red dashes falling back to the black, and a blue line to the right of the red dashed line.The Semiconductor Industry Association (SIA) recently released its January semiconductor market revenue figures.  January revenues were down 5.2% month-on-month, and 18.5% from January 2022.  Things are pretty bad.

The Memory Guy decided to compare the current situation to the forecast that I was sharing with my clients last October, five months ago.  At that time my company predicted that 2022 revenues would grow only 5% and that 2023 revenues would decrease 19%.  This outlook was based on a projection that the 2022 market would undergo a collapse similar to the 2019 downturn.

Since then the World Semiconductor Trade Statistics (WSTS) for five more months have been released.  How did those five months compare to my forecast?  This is illustrated in this post’s chart.

A semilogarithmic graph, showing a dashed straight black line from 2017 that represents semiconductor revenues trend, a red line of actual monthly revenues, red dashes for a forecast that runs from Sept 2022 through Dec 2023, where revenues fall back to the black trend line, and a blue line to the right of the red dashed line to give the past five months' actual revenues. THe blue line mimics the red dashed line, but is offset by a month.

Allow me to explain the chart.

First of all, it’s a semilogarithmic graph, that is, it plots worldwide monthly semiconductor revenues logarithmically on the vertical axis (in billions of dollars) against months, since 2017, on the horizontal axis.  Why semilogarithmic?  Mostly because steady growth appears as a straight line in this format.  Actual semiconductor revenues are represented as a solid red line.

The dashed straight black line is the steady growth that warranted my use of this format.  This line shows the 3.9% average growth trend that semiconductor revenues have very closely followed for 2½ decades since 1996.  Even in the short six-year span of this chart you can see that the revenue line hugs the trend except during the important booms of 2018 and 2021.

When WSTS released its August data last October, Objective Analysis already understood that the industry had begun a serious downturn that would probably behave similarly to the downturn in late 2018.  We projected for revenues (the dashed red line) to drop to the trend line by January 2023, and then follow the trend into 2024, similarly to the way the market performed from early 2019 through mid-2020.  This resulted in a 5% forecast for 2022 and -19% for 2023.  The October 2022 forecast wasn’t much different than the 6% forecast that Objective Analysis presented to our clients in November 2021.  (I should note that this forecast wasn’t very well accepted at the time — most other forecasts called for growth exceeding 20%.)

Now that the SIA has released numbers through January we can track how this forecast performed versus actual revenues.

Actual September-January monthly revenues have been added to the original chart as a blue line.  You can see that its slope is similar to the forecast, but the blue line appears to the right of the red dashed line, offset by one month.  It’s as if the blue line is following the red line, but that it has been delayed by a month.

What is most clear, though, is that the current downturn is very similar to the 2018 downturn.  We can expect for revenues to mimic the 2019-20 trend for the remainder of 2023.  Although this chart doesn’t show it, several other cycles from 1996 through 2021 have behaved the same way.

Could the red line actually fall below the trend line?  This is quite possible, but this only happened once over the past 2½ decades, and that was in 2009, the year of the Global Financial Collapse.  It’s unlikely that the global economy will suffer from another similar event anytime soon.

The take-away here is that the market is following a relatively normal and predictable behavior, and that it will eventually return to growth.  As it is going through the downturn, things will be very challenging for semiconductor suppliers, but there will be growth in 2024.

Objective Analysis paints very clear picture of the future for our clients.  You could take advantage of this insight.  Please contact us to discuss how we can help your company deal with a future that we deeply understand.