The latest analysis and forecast of the industry published by WSTS (World Semiconductor Trade Statistics) in May 2023 saw a substantial downwards revision of its forecast for 2023, from a contraction for 2023 of 4.1 per cent predicted last year, to a 10.3 per cent pull-back. This pattern can also be seen in financial data published by large semiconductor suppliers in both Taiwan and South Korea.

We have lowered our outlook for Asia as a whole, in part because of the slowdown in regions such as South Korea that had been performing above and beyond expectations due to heightened semiconductor demand.

Looking at Taiwan’s largest semiconductor suppliers, TSMC saw its consolidated year-on-year revenue growth for 2023 fall from +65.3 per cent in May 2022 (total annual revenue of ~$48B) to -4.9 per cent in May 2023, while ASE Technology dropped to -14.1 per cent in June 2023 compared with 33.9 per cent in June 2022 (total annual revenue ~$12.5B). TSMC has previously achieved double-digit growth each month for the past two years, with month-on-month highs of up to 60 per cent.

However, AU Optronics appears to be the only large semiconductor in Taiwan to have lost revenue for two years in a row, recording a drop in YoY revenue growth of -20.1 per cent YTD compared to -33.4 per cent for 2022 (total annual revenue ~$10bn). The reasons behind this are unclear, but may be linked to problems AU has had in expanding capacity to compete with other large AMOLED manufacturers and its switch to focus more of its resources on microLED research and development.

Despite plummeting production levels for semiconductors, we are also seeing positive order books in some areas, including North America, Europe and Taiwan. However, other regions have seen orders all but collapse and the impact of the Inflation Reduction Act in the United States is driving up domestic orders and demand rather than improving order books worldwide.

The reasons for plummeting semiconductor production output are complex, with much of the impact attributable to the falling demand for consumer electronics. There are also factors specific to the semiconductor industry, including the need for many chips to be both tailored and available fast. Following the supply chain disruptions and semiconductor shortages of recent years, companies often order from three or four different companies. This means when the orders come in either the customer or the vendor ends up with a surplus, and these resulting stockpiles have caused a subsequent slowdown in production orders. Semiconductors are also small components that are relatively cheap on an individual unit basis and do not spoil so are easy to store.

The semiconductor industry is predicted to bounce back fast, with uplift in output already anticipated in 2024 when demand and output is expected to pick up. South Korea is now shifting its ambitions towards the emerging market for AI semiconductors and has made no secret of the fact that it sees this as the next segment to boom, with its minister for science and information and communications, Jong-ho Lee, telling CNBC that “South Korea seeks to emerge as a prominent player in rapidly growing and promising areas such as AI semiconductors”. The government is heavily backing AI, making it part of the nation’s digital strategy and announcing last year it is planning to spend 1.02 trillion won ($786m) on AI semiconductor R&D over five years. Its strong AI base and global dominance of the memory chip market through companies such as Samsung and SK Hynix are likely to help it achieve this goal.

Adrian Lloyd is a 20+ year veteran of technology research and has pioneered many data analysis techniques that are used widely by analysts today. He brings his expertise to many technology markets from industrial automation products to semiconductors.