IC Insights: Next year, global semiconductor capital expenditures may see the largest decline in more than a decade

According to IC Insights, at the beginning of this year, semiconductor suppliers are enjoying a steady stream of orders influx of economic activity after the epidemic. Demand is extremely strong, with most fabs running well over 90% utilization. Many semiconductor foundries are operating at 100% utilization. The capital expenditure budget for 2022 has been achieved, reflecting continued strong demand.

However, in the second half of 2022, the situation suddenly changed. Soaring inflation has rapidly slowed the global economy, forcing many semiconductor manufacturers to scale back aggressive expansion plans.

As a result, IC Insights has revised its 2022 global semiconductor capex forecast, showing a 19% increase this year to $181.7 billion (Figure 1). The revision represents a decline from the original forecast of $190.4 billion and a 24% increase. While downgraded from the original outlook, the revised capex forecast is still set to reach a new all-time high.

As the chart shows, semiconductor industry capex will grow 10% in 2020 and surge 35% in 2021. If industry capex grows 19 percent this year, as forecast, it would mark the first time since 1993-1995 that the semiconductor industry has seen three consecutive years of double-digit capex growth.

With the memory market collapsing in the second half of this year and the weakness expected to persist through the first half of 2023, memory capex is forecast to drop by at least 25% next year. In addition, recent U.S. sanctions on Chinese semiconductor producers, particularly regarding the acquisition of semiconductor production equipment from U.S. companies, are expected to result in a 30% or more cut in capital spending by Chinese companies in the semiconductor industry in 2023.

Taken together, these two factors are expected to be responsible for a 19% decline in total global semiconductor industry spending in 2023, the largest decline since the global financial crisis of 2008-2009.

It’s worth noting that IC Insights doesn’t expect the $52 billion funding program for U.S. semiconductor suppliers in the U.S. Chip and Science Act passed earlier this year to boost U.S. semiconductor capex. Instead, IC Insights believes that most of the U.S. semiconductor producers that received funding will use the money for day-to-day expenses. In other words, the America Chip and Science Act funding is not expected to be "add-on" to the semiconductor industry's planned spending, but rather could replace budgetary funding that semiconductor producers would have prepared without receiving funding.