AI Fuelling Record Sales for Semiconductor Manufacturers

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The global semiconductor manufacturing industry is showing signs of recovery and growth according to research
Global semiconductor manufacturing is exhibiting signs of recovery due to surging demand for high bandwith memory and AI chips

The semiconductor industry has navigated a turbulent period defined by substantial challenges and unprecedented demand.

In recent years, the sector has contended with severe supply chain disruptions, compounded by COVID-19, geopolitical tensions, and natural disasters.

These issues triggered widespread chip shortages, impacting industries ranging from automotive to consumer electronics.

At the same time, the rapid progress in artificial intelligence (AI) and high-performance computing (HPC) has driven an insatiable demand for advanced semiconductors.

This surge, especially for advanced nodes and specialized chips, has put significant pressure on manufacturers to boost capacity and hasten innovation.

The industry has also encountered escalating geopolitical complexities, as nations compete for technological dominance and implement policies to reshore semiconductor production.

These multifaceted challenges have compelled the sector to adapt quickly, sparking investments in new fabs, alternative supply chains, and cutting-edge manufacturing technologies.

Semiconductor manufacturing: defined by opportunity & challenge

Now, the global semiconductor manufacturing industry is showing signs of recovery and growth, according to the latest Semiconductor Manufacturing Monitor (SMM) Report released by SEMI.

The report, covering the second quarter of 2024, highlights notable improvements in integrated circuit (IC) sales, stabilizing capital expenditure, and increased installed wafer fab capacity.

The global semiconductor industry: Challenges and opportunities The semiconductor industry is led by a few major players.

Companies like Taiwan Semiconductor Manufacturing Company (TSMC), Samsung, and Intel dominate in producing the tiny chips that power everything from smartphones to supercomputers, with TSMC particularly securing its spot as the largest contract chipmaker globally.

Other significant contributors to the semiconductor ecosystem include NVIDIA, Qualcomm, and Broadcom, which design the chips, and equipment suppliers like Applied Materials and ASML, critical for the intricate manufacturing process.

The industry’s resurgence is occurring in a complex environment of challenges and opportunities.

While slower recovery in some end markets has moderated growth in the first half of the year, the rising demand for artificial intelligence (AI) chips and high bandwidth memory (HBM) has provided a strong catalyst for expansion.

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Clark Tseng, Senior Director of Market Intelligence at SEMI, notes the shifting trends in semiconductor capital expenditures: “Despite moderate semiconductor capital expenditures in the first half of the year, we expect a positive trend to begin in Q3 2024 led by memory CapEx. Strong demand for AI chips and high bandwidth memory is boosting results in various segments of the semiconductor manufacturing ecosystem.”

This optimism is evident in the report, which shows IC sales grew by a strong 27% year-over-year in Q2 2024, with forecasts suggesting a further 29% rise in Q3 2024.

These numbers are expected to exceed the record highs of 2021, mainly propelled by AI-driven demand.

Key facts
  • IC sales projected to surge 29% in Q3 2024
  • Installed wafer fab capacity reached 40.5 million wafers per quarter in Q2 2024
  • Memory CapEx expected to grow 16% quarter-on-quarter in Q3 2024
  • Electronics sales forecast to grow 4% YoY and 9% QoQ in Q3 2024

The installed wafer fabrication capacity has increased, reaching 40.5 million wafers per quarter (in 300mm wafer equivalent) by Q2 2024.

This number is anticipated to grow by 1.6% in Q3 2024. Notably, foundry and logic-related capacity showed stronger growth of 2.0% in Q2 2024, with a projected rise of 1.9% in Q3 2024.

This expansion is driven by the buildup of capacity for advanced nodes, reflecting the industry's focus on more advanced manufacturing techniques.

Memory capacity, while seeing slower growth at 0.7% in Q2 2024, is forecasted to rise by 1.1% in Q3 2024. This growth is supported by strong demand for HBM and improving memory pricing, emphasizing memory's crucial role in current technology trends.

Interestingly, every region covered in the report experienced increases in installed capacity during Q2 2024.

China remains the fastest-growing region, despite moderate fab utilization rates.

This ongoing expansion in China highlights the country’s strategic emphasis on strengthening its domestic semiconductor sector amid global challenges and trade issues.

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The improving demand has positively affected inventory levels, with IC inventories decreasing by 2.6% year-over-year in the first half of 2024.

This drop in inventory indicates a healthier balance between supply and demand in the semiconductor market.

Capital expenditure in the semiconductor sector, which was conservative in the first half of 2024 with a 9.8% year-over-year decline, is expected to turn positive from Q3 2024 onward.

This shift is fueled by rising demand for AI chips and the rapid adoption of HBM. Memory CapEx is expected to lead this growth with a 16% quarter-on-quarter increase, while non-memory capital expenditures are projected to rise by 6% quarter-on-quarter.

“The entire semiconductor supply chain is recovering this year as the market prepares for a surge in 2025,” says Boris Metodiev, Director of Market Analysis at TechInsights, which produced the report in partnership with SEMI.

“AI is certainly continuing to drive high value ICs to the market, while also supporting CapEx for capacity expansion of AI chips and especially HBM. As consumer demand recovers, and new technologies like AI are pushed to the edge, unit volumes and especially revenues will recover and support the broader semiconductor manufacturing sector.”

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