Semiconductor industry: Recent trends and predictions for 2024

Although the notoriously cyclical global semiconductor industry saw lagging sales at the beginning of last year, the chips sector ended 2023 on a strong note and experts predict more of the same for 2024. 

However, if the U.S. wants to meet its goals for boosting domestic chip production, a recent report indicates more investment will be needed. 

Here, we’ll take a look at semiconductor predictions for the year ahead, factors driving industry trends, U.S. vulnerabilities, and new initiatives to help address them.

2024 semiconductor predictions

According to a recent report from the Semiconductor Industry Association (SIA), when it comes to global semiconductor sales, 2024 should be brighter than last year. Although sales picked up in the second half of 2023, there was an overall annual decrease of 8.2% compared to 2022. 

Still, the pace of increase in the last two quarters of 2023 were robust, perhaps forecasting persistent industry growth. 

SIA notes that fourth-quarter sales were 11.6% higher than the fourth quarter of 2022 and 8.4% higher than the total from the third quarter of 2023 — and in December alone, sales bumped up 1.5% compared to the month prior. 

“Global semiconductor sales were sluggish early in 2023 but rebounded strongly during the second half of the year, and double-digit market growth is projected for 2024,” said John Neuffer, SIA president and CEO. “With chips playing a larger and more important role in countless products the world depends on, the long-term outlook for the semiconductor market is extremely strong. Advancing government policies that invest in R&D, strengthen the semiconductor workforce, and reduce barriers to trade will help the industry continue to grow and innovate for many years to come.”

Additionally, SIA says several segments of the semiconductor market were particularly successful in 2023: 

• Logic products: $178.5 billion, making it the top product category by sales

• Memory products: $92.3 billion, taking second place

• Microcontroller units (MCUs): $27.9 billion, reflecting a 11.4% bump

• Automotive ICs (integrated circuits):  $42.2 billion, a 23.7% YoY increase and record total

Trends driving semiconductor industry growth

In its 2024 Semiconductor Industry Outlook, Deloitte experts underscore the growing role of generative AI in boosting chip sales, but caution that dicey geopolitics may “complicate growth.”

They also predict 4% growth in both PC and smartphone sales, which should give the industry an additional shot in the arm, since communication and computer chips made up the majority (56%) of semiconductor sales in 2022. 

In the report, the experts cover “five big topics” they expect will influence 2024 trends:

• Generative AI accelerator chips: In 2024, the Gen AI chip market is expected to reach over US$50 billion in sales, equating to “8.5% of the value of all chips expected to be sold for the year.” By 2027, some predict annual AI chips sales — mostly gen AI chips — could reach US$400 billion. 

• Smart manufacturing trends: Although semiconductor fab facilities and outsource semiconductor test and assembly facilities (OSATs) have been using advanced technologies to support smart manufacturing for many years, the experts say that in this context, two things may be different this year: “…the availability of sophisticated and highly advanced AI tools (including gen AI) to analyze large datasets and offer sharp insights” and “enhancing performance and sustainability of fabs and buildings.”

• More assembly and test (AT) capacity needed: The experts say there’s an increased blurring of the lines “between traditional front-end and back-end manufacturing” as each attempts to “capture more of the value chain” and that advanced packaging is “increasingly becoming a strategic enabler to build the most sophisticated leading-edge chips.” Additionally, testing is predicted to become even more important since “complex chip and module designs could require captive AT and OSATs to advance capabilities like system-level test, adaptive or dynamic test, and AI/ML-based bin prediction. …”

• Chip industry IP is a prime target for cyberattacks: Compared to other industries, the experts say that semiconductor companies have even more to worry about when it comes to cyberthreats. “In addition to the usual profit-seeking ransomware attacks that every industry deals with, semi companies possess unique, valuable, and restricted intellectual property (IP). Due to the increasing importance of semiconductors for multiple industries, it’s often targeted by state-backed actors. …”

• Geopolitics will continue to influence dynamics related to advanced chips: In the past two years, advanced node manufacturing and chips that accelerate AI have increasingly been impacted by export controls. In 2024, the experts say those dynamics may intensify: “Both of these technologies were restricted to some extent in 2022, with restrictions tightening further in October 2023. We expect that 2024 will see the ramifications of those restrictions, as well as possible further restrictions. …”

As evidence of the rapidly increasing influence of Gen AI, one company with its hands in that particular pie has been surging in profitability and some experts say the sky’s the limit in the years to come. 

In a February 22 post for Axios, Ina Fried describes how “the world's most valuable chipmaker,” Nvidia, has been cranking out reports of “massive revenue growth” due to its focus on meeting demand for chips “to train and run AI systems.”

Fried cited Nvidia CEO Jensen Huang as saying that generative AI has reached a “tipping point’: "Demand is surging worldwide across companies, industries and nations," Huang reportedly said. 

Additionally, Fried notes that with an eye on the vast potential of Gen AI and the advanced chips that will be needed, Intel is working toward transforming itself into a “credible contract-manufacturing rival to Taiwan-based TSMC, which makes chips for firms that design them — like Nvidia.”

“The rise of generative AI has Intel CEO Pat Gelsinger feeling pretty good about his decision to double down on manufacturing,” Fried writes, saying that Gelsinger told reporters at a recent event, “What are we going to do with all those fabs? I think we're going to be building an awful lot of AI chips. Overall demand appears to be insatiable for the need for computing for several years into the future."

CSCMP report indicates the U.S. must do more

Although many in the U.S. have been touting the CHIPS and Science Act of 2022 to help boost the domestic semiconductor industry, a report released late last year from the Council of Supply Chain Management Professionals (CSCMP) indicates it may not be enough. 

In a recent Supply Chain Dive post, Manufacturing Lead Editor Kate Magill gives a nod to the rapid changes taking place in the semiconductor industry — as well as the increasingly dicey dynamics between the U.S. and China as the former seeks to limit the latter’s access to advanced chips.

Magill also provides five key takeaways from the CSCMP report: 

1. The semiconductor manufacturing sector is highly concentrated

2. Chips rely on a highly complex global supply chain

3. The U.S.’s hold on the global semiconductor industry has fallen

4. China actually benefited from the CHIPS and Science Act

5. The CHIPS and Science Act is just a start of what the U.S. needs

In a press release announcing the report, CSCMP describes some of the growing complexities influencing the semiconductor industry. 

“With much of the world becoming sensitive to factors affecting ‘globalization’ and the shifting labor costs to reduce the cost of both sourcing raw materials and components, and outsourced manufacturing and assembly, we also now recognize that there are other risks,” the announcement says. “This evolution of global trade has removed the essence of what we have known that concentrated critical ‘supply chain’ elements into Asia may not work as seamlessly as in the past. And now, sensitivity to who can source, access, make and consume digital components to either produce what we make or found within what we acquire to make goods is now a major point of supply chain risk.”

Commenting on the report’s findings, CSCMP President and CEO, Mark Baxa said, “This report is critical to shaping the conversation supply chain professionals at all levels in their organizations need to have about this most critical component of all things digital. Anything digital, directly or indirectly touching your supply chain begins and ends with the semiconductor. How much must you know about the risks to delivery depends on your business, but you can't escape these essential questions…What do I need to understand about the semiconductor global supply chain and further, what level of risk to my supply chain do I have if your suppliers don't understand their risks, as well?"

Intel's Corporate Vice President, Global Supply Chain Operations, Jackie Sturm stressed, "To truly address the vulnerabilities in today's semiconductor ecosystem we must eliminate single points of failure in mineral access from the ore through refinery, align regulatory policies, increase domestic access to skilled construction and STEM workforces, shore up today's logistics networks, and adapt financial incentives and policies with the realities of our capital intense industry."

Recent U.S. semiconductor industry initiatives

In an effort to address vulnerabilities such as those cited in the CSCMP report, the U.S. Commerce Department announced in late December plans to initiate a new survey starting in January to “bolster the U.S. semiconductor supply chain and protect U.S. national security.” 

According to the announcement, the survey will be launched by the Bureau of Industry and Security (BIS) within Commerce and “serve as a foundation for continued analysis of the capabilities and challenges of the broader U.S. semiconductor supply chain and national defense industrial base.”

“The intent of the survey is to identify how U.S. companies are sourcing current-generation and mature-node semiconductors, also known as legacy chips,” the Commerce Department said. “This analysis will inform U.S. policy to bolster the semiconductor supply chain, promote a level playing field for legacy chip production, and reduce national security risks posed by the People’s Republic of China (PRC).”

“Legacy chips are essential to supporting critical U.S. industries, like telecommunications, automotive and the defense industrial base. Addressing non-market actions by foreign governments that threaten the U.S. legacy chip supply chain is a matter of national security,” said Secretary of Commerce Gina Raimondo in the statement. “Over the last few years, we’ve seen potential signs of concerning practices from the PRC to expand their firms’ legacy chip production and make it harder for U.S. companies to compete. To get ahead of these concerns, the Department of Commerce is taking proactive measures to assess the U.S. semiconductor supply chain by collecting data from U.S. companies on the sourcing of their legacy chips. Government alone cannot create and sustain a robust supply chain – we need industry at the table. This survey will empower the Department with the data we need to inform our next steps in building strong, diverse, and resilient semiconductor supply chains.”

More recently, the Commerce Department announced an expected investment of more than $5 billion in the CHIPS R&D program, including the National Semiconductor Technology Center (NSTC) and the formal establishment of a public-private consortium for the NSTC. Plans include “hundreds of millions of dollars of expected investment in the semiconductor workforce; along with specific funding announcements in packaging, metrology, and a CHIPS Manufacturing USA Institute,” the Commerce Department said. 

“The NSTC is the centerpiece of CHIPS for America’s $11 billion research and development (R&D) program,” the announcement explained. “A once-in-a-generation opportunity, the NSTC will bring together government, industry, labor, customers, suppliers, educational institutions, entrepreneurs, and investors to accelerate the pace of new innovations from idea to marketplace. As a public-private consortium, the NSTC will lower the barriers to participation in semiconductor R&D to create a more vibrant national ecosystem and to directly address fundamental needs for a skilled, diverse semiconductor workforce.”