A weak memory market and U.S. sanctions on China semiconductor producers are two driving factors behind the expected -19% drop in semiconductor capital spending in 2023.

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At the start of this year, semiconductor suppliers were enjoying a strong influx of orders due to robust post-Covid-19 economic activity.  Booming demand pushed most wafer fab utilization rates well above 90%. Many semiconductor foundries operated at 100% utilization. Capital spending budgets for 2022 were set in place to reflect the strong ongoing demand.

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Collapsing memory prices and uncertain global economy weigh on next year’s growth.

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Total semiconductor sales include the combined sales of ICs, optoelectronics, sensors and actuators, and discretes (O-S-D) components. After soaring 25% to $614.7 billion in 2021, worldwide semiconductor sales are expected to increase 3% in 2022 and to a new record sales level of $636.0 billion this year (Figure 1).

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Inflation, recession concerns stunt demand for PCs, smartphones, other consumer goods leading to -40% decline in 2H22 DRAM sales.

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The DRAM market often enjoys robust sales in the second half of the year when system makers place orders for memory to use in their new generation of products that they plan to release for the year-end holiday season.  That scenario has not panned out this year. Weakening economic conditions and high inflation rates have slowed global demand for personal computers, mainstream smartphones, and other consumer electronics.  As a result, DRAM demand has spiraled downward and sales are now forecast to fall -40% to $29.3 billion in the second half of 2022 compared to $49.0 billion in 1H22 (Figure 1).  For all of 2022, the DRAM market is forecast to fall -18%.

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Tight supplies of devices in automotive, industrial, and embedded-control applications drive up prices, causing double-digit percentage revenue growth in most sensor categories, says update report.

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Fueled by the spread of “smart” embedded controls and higher selling prices due to tight supplies in the market, semiconductor sensor sales are forecast to continue to register double-digit percentage growth in 2022 compared to last year, says IC Insights’ upcoming November 4Q22 Update of The McClean Report service. However, weakening economic conditions and high inflation rates around the world have slowed sensor unit demand in consumer electronics, personal computers, and mainstream smartphone segments since the start of summer.
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Notably, the IC market has never shown more than three sequential quarters of decline!

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The November Quarterly Update to the 2022 McClean Report will be released later this month.  This Update includes a discussion of the 2022-2026 semiconductor industry forecast by major product type, an updated forecast for semiconductor industry capital spending through 2026, and a look at the expected top-25 2022 semiconductor suppliers.

Over its 60-year history, the IC industry is well known for its cyclical behavior.  Looking back to the mid-1970s, there hasn’t been a period where the IC market declined for more than three quarters in a row. Following a 9% drop in the 3Q22 IC market, and assuming the 4Q22 and 1Q23 IC markets register a decline, the 3Q22-1Q23 timeperiod would mark the seventh three-quarter IC market drop on record (Figure 1).

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