Semiconductor Market: Navigating Volatility
July 23, 2024
Note: We reveal investment insights through the quotes of top business leaders.
Key Takeaways
- The semiconductor market is highly cyclical and volatile, with rapid technological changes and short product life cycles driving demand fluctuations.
- Geopolitical tensions and supply chain disruptions significantly impact operations, with companies adopting strategies like vertical integration to mitigate risks.
- Technological advancements, particularly in AI and chiplet packaging, are driving significant changes and growth in the semiconductor industry.
- Regulatory changes and economic factors are influencing market demand, operational costs, and overall business performance.
- Strategic responses, including new product deployments and cost optimization, are crucial for navigating market volatility and ensuring sustained growth.
Demand Fluctuations in the Semiconductor Market
The semiconductor market experiences significant demand fluctuations due to its cyclical and volatile nature, rapid technological changes, and short product life cycles (QCOM). Despite this, investments in capacity and technological advancements are expected to meet growing demand, with the market potentially doubling in the next five years (INTC). Specific segments, such as semiconductor substrates, are forecasted to grow steadily (AMD). Revised forecasts indicate a healthy market recovery in 2024, following inventory corrections (TSM). Additionally, AI-driven demand is set to boost DRAM and NAND markets significantly (MU).
"The semiconductor industry is highly cyclical, volatile, subject to downturns and characterized by constant and rapid technological change, price erosion, evolving technical standards, frequent new product introductions, short product life cycles and fluctuations in product supply and demand." --- (QCOM, sec filing, 2024/Q2)
"Our investments in leading-edge capacity in the U.S. and Europe will be critical to meet the growing demand for silicon, with the global semiconductor market poised to double over the next five years," said David Zinsner, Intel CFO." --- (INTC, press release, 2024/06/04)
"Market research firm Prismark predicts that the semiconductor substrate market will grow at an average annual rate of about 7%, increasing from 15.2 trillion KRW in 2024 to 20 trillion KRW in 2028." --- (AMD, press release, 2024/07/22)
"We lowered our forecast for the 2024 overall semiconductor market, excluding memory, to increase by approximately 10% year-over-year, while foundry industry growth is now forecast to be mid- to high-teens percent, both are coming off the steep inventory correction and/or base of 2023. Having said that, we continue to expect 2024 to be a healthy" --- (TSM, earning call, 2024/Q1)
"These trends will drive significant growth in the demand for DRAM and NAND, and we believe that Micron will be one of the biggest beneficiaries in the semiconductor industry of the multi-year growth opportunity driven by AI." --- (MU, earning call, 2024/Q3)
Impact of Supply Chain Disruptions
Geopolitical tensions, economic uncertainties, and export license issues are significantly disrupting semiconductor supply chains, impacting operations and customer demand. Companies like onsemi are mitigating these risks through vertical integration, while others face challenges in maintaining commercial relationships and timely product development.
"Russia and the continued hostilities and the armed conflict in the Middle East, which could adversely impact the global supply chain, disrupt our operations or negatively impact the demand for our products in our primary end markets; the ability to maintain good relationships with NXP's suppliers; and a change in tax laws could have an effect on our estimated effective tax rate." --- (NXPI, press release, 2024/07/22)
"However, factors outside of our control, including uncertainty in the global economy and the semiconductor industry, as well as disruptions in credit markets, have in the past, are currently, and could in the future, impact customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers, and creditors." --- (LRCX, sec filing, 2024/Q3)
"The possible negative effects on our future business of export licenses not being granted could be material and could disrupt our supply chain and product shipment, and impair our ability to complete product development in a timely manner, or our ability to support existing customers of covered products or supply customers of covered products outside the impacted regions, and may require us to transition certain operations out of one or more of the identified countries." --- (KLAC, sec filing, 2024/Q3)
"onsemi has convinced us with a deeply verticalized supply chain from the growth of the raw material up to the assembly of the power box," said Mr. Dirk Große-Loheide, Member of the Extended Executive Committee Group Procurement and Member of the Board Volkswagen Brand for "Procurement."" --- (ON, press release, 2024/07/22)
"When we look at our assessment, we consider all impact and risk across the entire value chain." --- (ASML, event transcript, 2024/04/24)
Geopolitical Influences on the Market
Geopolitical tensions, particularly U.S. reliance on TSMC, significantly impact the semiconductor market. Disruptions from geopolitical conflicts and natural disasters further strain supply chains and raw material costs. Despite Huawei's market entry, Qualcomm's premium tier remains stable, underscoring the complex geopolitical landscape's influence on the industry.
"So congrats on the positive high market share. However, the concern is growing, right, that the U.S. continues to depend on our Island TSMC and the chip production." --- (TSM, earning call, 2024/Q2)
"In addition, natural disasters, effects of climate change, acts of war or other geopolitical conflicts may result in disruptions in transportation, distribution channels and supply chains and significant increases in the prices of raw materials." --- (QCOM, sec filing, 2024/Q2)
"But at the same time, the premium tier has grown significantly. And what we're seeing is our customers are actually, even with Huawei coming into the market, are actually holding or expanding their position in the premium tier." --- (QCOM, conference, 2024/05/21)
"So I think that's probably as good as an answer I can give it to you. I think the there is, in general, I think from semiconductor industries, the geopolitics in the U." --- (QCOM, conference, 2024/05/29)
Technological Advancements Driving Change
Technological advancements in the semiconductor market are being driven by innovations in AI, semiconductor electronics, and compute power. Companies like Intel, Nvidia, and AMD are leading with foundational technologies, multi-generational roadmaps, and innovations in chiplet packaging, enhancing capabilities while reducing costs and pushing the boundaries of computing.
"Driving the shift are advancements in foundational technologies, including AI, semiconductor electronics, compute power and infrastructure solutions among others." --- (INTC, conference, 2024/06/12)
"runs. And so I think the pace of innovation that we're bringing will drive up the capability, on the one hand, and drive down the TCO on the other hand." --- (NVDA, earning call, 2025/Q1)
"And that is a significant multi generational roadmap that we have in each of those areas.Also utilizing advanced technology and driving both leadership process technology as well as 2.5D and 3 d chiplet packaging, which has been one of the key innovations that AMD has brought to the marketplace." --- (AMD, event transcript, 2024/05/08)
"We are confident in our plans to drive sequential growth throughout the year as we accelerate our AI solutions and maintain our relentless focus on execution, operational discipline and shareholder value creation in a dynamic market. With the advent of Hala Point, Intel aims to support research for future brain-inspired AI, and to tackle challenges related to efficiency and sustainability in today's AI rollouts." --- (AMZN, press release, 2024/05/02)
""The magic of silicon is once again enabling exponential advancements in computing that will push the boundaries of human potential and power the global economy for years to come." More: Intel at Computex 2024 (Press Kit) Gelsinger continued, "Intel is one of the only companies in the world innovating across the full spectrum of the AI market opportunity – from semiconductor manufacturing to PC, network, edge and data center systems."" --- (INTC, press release, 2024/06/03)
Financial Performance Amidst Volatility
Intel plans to manage gross margin volatility through revenue growth, spending profiles, startup costs, and product mix. Nvidia highlights that incorrect demand estimates for new use cases can create revenue volatility, impacting financial performance.
"So that should help adjust the volatility of the gross margin. So it will be more a function of revenue growth, spending profile in the fabs, startup costs that we have and the mix." --- (INTC, earning call, 2024/Q1)
"Our demand estimates for new use cases, applications, and services can be incorrect and create volatility in our revenue or supply levels, and we may not be able to generate significant revenue from these use cases, applications, and services." --- (NVDA, sec filing, 2025/Q1)
Strategic Responses to Market Challenges
Nvidia, Micron, Qualcomm, TSM, and Intel are addressing semiconductor market challenges through strategic responses such as deploying new products, managing risks, pursuing acquisitions, tackling rising costs, and optimizing cost efficiency. These strategies are crucial for navigating market volatility and ensuring sustained growth and competitiveness.
"Deployment of new products to customers creates additional challenges due to the complexity of our technologies, which has impacted and may in the future impact the timing of customer purchases or otherwise impact our demand." --- (NVDA, sec filing, 2025/Q1)
"A variety of risks and factors that are beyond our control could cause actual results to differ materially from those in the forward-looking statements including, without limitation, the following: (a) market conditions; (b) anticipated trends, challenges and growth in our business and the markets in which we operate; (c) our ability to appropriately respond to changing technologies on a timely and cost-effective" --- (MU, press release, 2024/06/20)
"If we do not achieve the anticipated benefits of business acquisitions or other strategic activities, or if we are unable to consummate acquisitions or strategic investments that we consider important to the future of our business, our business and results of operations may be adversely affected, our growth and diversification strategy may not be successful, our stock price may decline and our reputation may be harmed." --- (QCOM, sec filing, 2024/Q2)
"At the same time, we face rising cost challenges due to increasing process complexity, a leading load, higher electricity costs in Taiwan, global fiber expansion in higher cost regions, and other cost inflation challenges." --- (TSM, earning call, 2024/Q2)
"by optimizing for cost efficiency and extending the life of our assets. And we're addressing the scale challenges by bringing in external designs into our factory network and uniquely able to capture margin stacking and monetizing the IP in both our products and our foundry." --- (INTC, event transcript, 2024/04/02)
Consumer Trends and Market Demand
PC market demand has slightly exceeded expectations, benefiting Windows OEMs (MSFT). Economic factors like fuel and food costs impact consumer spending (AMZN). The mid-range segment drives high-performance computing server demand (AMD). Demand outstrips supply, especially for H200 and Blackwell (NVDA). Market focus is shifting towards inferencing capabilities (INTC).
"In our consumer business, PC market demand was slightly better than we expected, benefiting Windows OEM, while advertising spend landed relatively in line with our expectations." --- (MSFT, earning call, 2024/Q3)
"In addition, changes in fuel, utility, and food costs, interest rates, and economic outlook may impact customer demand and our ability to forecast consumer spending patterns." --- (AMZN, sec filing, 2024/Q1)
"The mid-range segment leads the market demand for High-performance Computing Servers." --- (AMD, press release, 2024/06/13)
"But I think overall, the comments that we made about demand outstripping supply is for the entire market and particularly so for H200 and Blackwell towards the end of the year." --- (NVDA, earning call, 2025/Q1)
"And as the market is more focused on inferencing going forward, if you can run the models, right, in the context of the databases and the others." --- (INTC, earning call, 2024/Q1)
Regulatory Changes and Market Impact
Regulatory changes, including those related to trade policies, tax laws, and environmental regulations, are significantly impacting the semiconductor market. Companies like Qualcomm and Marvell Technology report adverse effects on market acceptance, demand, and operational costs, highlighting the critical influence of evolving regulatory landscapes on business performance.
"In addition, defects, errors or security vulnerabilities in our products could result in failure to achieve market acceptance, a loss of design wins, a shifting of business to our competitors, and litigation or regulatory action against us, and could harm our reputation, our relationships with customers and partners and our ability to attract new customers, as well as the perceptions of our brand." --- (QCOM, sec filing, 2024/Q2)
"See also Part II, Item IA, “Risk Factors,” including, but not limited to, the risk detailed under the caption “Adverse changes in the political, regulatory and economic policies of governments in connection with trade with China and Chinese customers have reduced the demand for our products and damaged our business.”" --- (MRVL, sec filing, 2025/Q1)
"Discrete items primarily relate to unexpected tax events that may occur as these amounts cannot be forecasted (e.g., the impact of changes in tax law and/or rates, changes in estimates or resolved tax audits relating to prior year tax provisions, the excess or deficit tax effects on share-based compensation, etc.)." --- (NXPI, press release, 2024/04/29)
"Compliance with, or changes in the interpretation of, existing Regulations, the adoption of new Regulations, changes in the oversight of our activities by governments or standards bodies, or rulings in court, regulatory, administrative or other proceedings relating to such Regulations, among others, could have an adverse effect on our business and results of operations." --- (QCOM, sec filing, 2024/Q2)
"In particular, new, or changes in, environmental and climate change laws, regulations or rules, including relating to greenhouse gas emissions, could lead to new or additional investments in production processes and could increase environmental compliance expenditures." --- (QCOM, sec filing, 2024/Q2)