The Semiconductor Market Outlook for 2024 - Shortage? Excess? Or Stabilization?

The electronic component market is cyclical. Over the past year, the electronic components industry’s poor market performance was forecasted by softening demand in mid-to-late 2022, as original component manufacturers (OCMs) warned clients not to fall prey to double-ordering paranoia. Unfortunately, the frantic consumer demand and global semiconductor shortage gave many a false sense of compounded fear.  

When consumer demand readily dropped from inflationary prices and recession concerns, excess electronic component inventory became one of the biggest challenges in 2023. This kicked off the downward trend after significant growth for the electronic component industry that, when observed, echoed previous drops in its decades-long history.

According to Edgewater Research, the current market trend the electronic component industry is experiencing is like the 2000 and 2011 drop. Dennis Reed, Senior Research Analyst at Edgewater Research, said in the company’s “4Q23 Electronic Components Industry Outlook” webinar that the market will likely follow the 2011 correction cycle. “There are a lot of similarities between the two corrections,” Reed said. “We are following a once-in-a-generation black swan event.”  

The current dip in the market is different from 2011 or 2018. Both saw more dramatic falls, whereas 2023 had a much shallower drop with a 10% decline. 2011 and 2018 saw declines of 12% and 14%, respectively. Neither came close to the troughs seen in 2000 or 2007, which witnessed a 42% and 36% drop.  

Despite the shallow decline, Edgewater Research’s study shows this period could last longer than previous cycles, even with noticeable progress toward recovery in 3Q23 and 4Q23. The cause for concern is the lingering problem of excess inventory, which continues to plague many manufacturers.  

Excess Electronic Component Inventory is Still a Challenge

More work must be done to mitigate excess electronic component inventory. The inventory overhang was a major challenge in 2023 and one of the contributors to the market decline. Non-cancelable orders by OCMs in the semiconductor industry after months of double ordering through the worst of the semiconductor shortage acted as the perfect catalyst for the sharp decline in late 2022 and through 2023.  

However, strategic production cuts haven’t been entirely ineffective. Samsung Electronics, SK Hynix, and Micron Technology’s cuts couldn’t stop the dramatic trough of the memory component experience 2023, with DRAM and NAND experiencing the worst pitfalls but keeping it from falling further.  

Inventory correction and production cuts have helped progress in 3Q23 and still in 4Q23. In the same webinar, Reed concluded that inventory build-up remains an issue until 3Q24 and 4Q24 at the earliest. Sales across the semiconductor, interconnect, and passive market will not reach the peak needed to digest the build-up until later in the year. Even then, Edgewater Research’s study has a tentative outlook for sales in 2024 in most markets. Insufficient demand to consume excess electronic component inventory through product sales might exist.

Continuing mitigation through inventory correction through the first half of 2024 is advised. For many original equipment manufacturers (OEMs), contract manufacturers (CMs), and electronic manufacturing service (EMS) providers, selling excess electronic component inventory is the best way to regain cash flow and prevent additional costs from warehouse storage fees from piling up.  

It can be challenging to sell excess inventory without an established market presence, especially when a company lacks the tools to handle logistics, assure quality, and ship globally. However, it is not an impossible task. Partnering with a global distributor with the market presence and capability to sell excess inventory to interested buyers is the best option.  

With excess inventory remaining a challenge through 1H24, selling excess inventory will be a crucial step toward further recovery.  

PC DRAM Rising in 1Q24, But Flat Market Demand Concerns Remain

After a year of extremely poor consumer demand, DRAM prices have broken free from their downward spiral. Beginning in 4Q23, the DRAM market finally began to reach a price bottom. In Sourcengine’s 4Q23 Lead Time Report, there had been a noticeable shift in lead time and price trends for DRAM products manufactured by Samsung Electronics, Micron Technology, and Winbond. Lead time alone for SDRAM, DDR I/DDR II, and DDR 3/LPDDR3 products rose by two weeks after months of short turnaround time.  ‍

A recent report by TrendForce predicts that there will be another quarter of double-digit prices across the DRAM market. The contract price for PC DRAM will rise by 10%-15% in 1Q24, while server and graphics DRAM prices will see similar increases. In the mobile memory market, DRAM prices will rise by 18%-23% over the same period.  

Despite the rises, TrendForce and Edgewater Research don’t believe this is attributed to a sudden influx of consumer demand. Edgewater Research reports that in 2024, the PC, server, and smartphone market will experience relatively flat demand with slight growth over 2024. A true rebound is unlikely to occur within 2024 but in 2025.

TrendForce indicated in its report that the price jump is likely due to uncertainty. This uncertainty is impacting demand for various DRAM types, including DDR4 and DDR5. The current industry transitional period makes planning more complicated for manufacturers.

“The market is buzzing with unfilled DDR5 orders,” according to TrendForce. That uncertainty is starting to push prices in that sector and will likely move into consumer DDR4 DRAM such as smart TVs, consoles, and set-top boxes.  

Strategic production cuts throughout 2023 have helped and will continue in 2024 to keep supply-demand tight.

The current prices are still 17% below January 2023 but could return to early 2023 levels later this year. Artificial intelligence has helped drive demand up and mitigate some of the effects from excess, but it is not a silver-bullet solution. Artificial intelligence is not expected to be integrated into specific markets, such as consumer PCs, until 2025, when Edgewater Research expects the market to rebound.  

Electronic Component Market Forecast for 2024 - Recovery, but How Much Depends on Who You Ask

The overarching theme in most reports by Edgewater Research, TrendForce, and the International Data Corporation (IDC) forecast that market demand will pick up in 2H24. Depending on the firm, most outlooks range between highly optimistic and cautiously positive. Due to the cyclical nature of the electronic component industry, research concludes that the bottom of the market decline occurred over 2023. The market is recovering, but it depends on who you ask how quickly it will reach peak sales again.  

Edgewater Research is more tepid in its analyses. Industrial, corporate, and consumer markets will be subdued and muted in Q1 and Q2. Most industries are still grappling with inventory overhang and cyclical pressures. While a boon, artificial intelligence needs to be more widespread to make a noticeable uptick in consumer and corporate demand. The same goes for the automotive market, as fleet vehicles have made up most of auto demand.  

Electric vehicles (EVs), while growing in popularity thanks to new variations and tax breaks, are still not widely adopted or, for that matter, diverse. Only two major EV manufacturers, BYD Auto and Tesla, are exploring new avenues of competitive advantage with different vehicle offerings. Other EV manufacturers are trailing behind.

Digitalization and electrification are ramping up within military use and are expected to increase in the coming years. According to Edgewater Research, the trajectory for 2024 is to burn through the remaining excess stock before growth occurs in the latter part of the year. Interconnects will see the most growth compared to semiconductors and passives, with pricing and rising trade war tension between China and the U.S. possibly throwing it off.  

In comparison, IDC and the World Semiconductor Trade Statistics (WSTS) are both overly optimistic for 2024’s market outlook. Based on the November 2023 statistics revision, WSTS believes that the compound annual growth rate (CAGR) between 2020 and 2024 is double what we saw in previous years. This is primarily due to the popularity of artificial intelligence coming to fruition. ChatGPT and other large language models (LLMs) are likely to continue to dominate most people’s interest in 2024.

WSTS sees a substantial rebound over 2024 with a growth rate of 13.1%, thanks to memory driving this change. Current projects indicate a surge in the year, with regional markets worldwide posed for double-digit year-on-year growth ahead.  

IDC forecasts an accelerated rebound and growth for the semiconductor market in 2024, with a possible growth rate of 20.2% YoY. That’s a massive upgrade. These predictions come from optimism about the resilience of the U.S. market and China’s planned market recovery in 2H24.  

Similarly, elevated inventory levels affecting the automotive and industrial sectors will normalize in 2H24, which is on par with Edgewater Research’s analysis.  

Three things are certain for the electronic component market in 2024.  

1. Excess electronic component inventory will still be an issue for the year's first half.  

2. A rebound is in the works, and most industry markets will begin to benefit in 2H24.

3. Artificial intelligence will continue to drive demand in 2024 and likely help in 2025.  

‍Sell Your Excess and Buy Your BOM Parts with Sourcengine

There’s a lot of work to be done in the first quarter of the year to ensure a fast and beneficial recovery. Excess electronic component inventory continues to impact many OEMs, CMs, and EMS providers and will for the coming months. The market is not currently experiencing shortages, and the bottlenecks that occurred last year for coveted AI-capable parts didn’t raise an alarm to indicate a shortage on a global scale.  

To prepare for the highs and lows of 2024, organizations need a partner to get them the electronic components they need for their products and the option to sell unwanted excess inventory for maximum return quickly. That partner is Sourcengine, Sourceability’s global e-commerce site.  

Sourcengine has over one billion parts from thousands of leading franchised, authorized, and qualified third-party distributors. Users can quickly find the parts they need by using Sourcengine’s built-in bill of materials (BOM) management tool, Quotengine, to locate offers that best fit their BOM requirements. Suppose users can’t find a part offer they like. In that case, they can contact Sourcengine’s global team of experts with an RFQ to receive a personalized quote or set up notifications to get alerts when a part offer matching their specifications becomes available.  

For those still struggling to offload their excess inventory, Sourcengine’s Sell Your Excess feature helps companies get on the right track to sell their excess on Sourcengine’s global site. There, users can quickly calculate what their excess will sell for on the market in real time.  

2024 will be a transitional period for the market, with plenty of opportunities and challenges waiting in the wings. Sourcengine will help you get through 2024 no matter what comes your way.