Penn adjusts forecast amid semiconductor market strife

“And then,” says veteran industry analyst Malcolm Penn (pictured), Chief Executive Officer of Future Horizons, “from January, the wheels fell off, and the whole thing crashed, it turned into a train wreck, we went from 8.4 per cent to minus 5.7 per cent in Q1 2024.”

At which point Penn downgraded his 2024 growth forecast from 16 per cent to 4.9 per cent.

“Then just as dramatically it turned up again to 6.5 per cent in the second quarter,” Penn exclaims, prompting him to shift his forecast back into double digits with a range of 13 per cent to 17 per cent, with 15 per cent growth the most likely outcome.

Early indications for 2025 are not good. Penn offers an indicator of 5 per cent to 11 per cent growth.

“It will be slower than 2024 because of the strong start to this year, and the memory market will start to slow down from high growth rates,” explains Penn.

Other sectors of the market are sluggish, advancing at lower growth rates, so Penn anticipates single figure growth for the semiconductor market in 2024.

He worries that while the IC market is growing, both optoelectronics and discretes are not performing well.

“Opto has been negative for over a year,” he observes, “while discretes went down into negative territory a year ago, and is only just turning back up.”

The latter sector is the key concern. “Discretes are far more indicative of the electronics industry’s health,” says Penn. “Think about it, almost every product the industry makes has a discrete device in it, that tells you the broader market is not doing well.”

Penn’s four key indicators to the health of the semiconductor industry are the global economy, unit shipments, average selling prices and capacity.

He points to the economy suffering with high interest rates and inflation dampening demand alongside the heightened tensions surrounding the conflicts in the Ukraine and Middle East, and China/Taiwan.

“Unit demand is running below long term averages, blighted by stubbornly high excess inventory levels and weak end market demand,” adds Penn.

He sees a big divide between non-China and China capital expenditure. “Non-China is prudently reining back, while there is a massive China overspend way beyond their needs.”

“And average selling prices are going down, I expect that to be the case this year and at the start of next year,” Penn concludes. “The chip market fundamentals are systemically very weak.”