AI Demand Saves Semiconductor Market In Q1 2024

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Is artificial intelligence the ray of hope for the global chip industry, which saw a 2% decline in the first quarter of this year?

According to Omdia’s report, the semiconductor market experienced a sluggish start worldwide. It saw a decline of about 2%, dropping to a total of $151.5 billion in Q1 2024. 

Various parts of the market experienced decreases in sales during this quarter except the data processing segment, the only division where revenues rose by 3.7%. 

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The report stated that this was driven by sustained high demand for NVIDIA’s chips and other products related to artificial intelligence (AI), countering declines in other segments of the semiconductor market.

NVIDIA has seen strong growth despite the down quarter. It has increased its market share by over two percentage points, reaching 14.5% of total semiconductor market revenue. 

This growth has also allowed NVIDIA to surpass traditional leaders Samsung and Intel, whose combined market share is 18.6%. Furthermore, SK Hynix and Micron have seen an increase in their market share rankings with the resurgence of memory growth.

However, the consumer segment of the semiconductor market saw the most significant decline, dropping by 10.4% compared to the fourth quarter of 2023. 

The industrial segment also decreased by 8.5%, primarily due to inventory level adjustments. Even the automotive segment, which had shown consistent growth over recent years, saw a decline of 5.1% in the first quarter of this year.

Omdia highlighted that the first quarter usually experiences a decline, with market revenue dropping by 4.4% following a robust fourth quarter driven by seasonal demand. However, the downfall in the automotive segment came as a surprise.

Initially resilient to the overall semiconductor market growth sparked by the COVID-19 pandemic, the automotive sector eventually faced a decline but swiftly recovered. 

After achieving revenue growth for 13 consecutive quarters from the third quarter of 2020, the automotive segment saw a minor downturn of 0.6% in the fourth quarter of 2023. However, this decline worsened significantly in the first quarter of 2024. 

According to the reports, this decline reflects a broader slowdown in car demand, influenced by a decrease in the growth rate of electric vehicles (EVs) in recent quarters, leading to an adjustment in semiconductor demand. 

There is also hope that despite these challenges, the automotive semiconductor market remains a promising area for long-term growth and is expected to rise over the next five years.

Omdia also indicates that combined factory utilisations in the semiconductor industry mirror industry trends, including IDM and Foundry. 

The usage rates peaked during the early stages of the COVID era in 2022 but sharply declined in the second half of 2022 due to reduced demand and high inventory levels. Despite revenue growth in 2023, fab utilisation rates have stayed relatively low, around the low 80% range.

According to Craige Stice, Omdia’s Chief Analyst, utilisation rates saw a slight increase in the second half of 2023 as the market sought balance, but full recovery is still awaited. Expected demand growth in the second half of 2024 is anticipated to drive up the rates through inventory adjustments.

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