Semiconductor Industry CapEx to Experience Sharpest Drop Since 2008: Forecast

Major chipmakers are expected to significantly reduce Capital Expenditures in 2023.

Rising inflation and a weakening global economy forced many, if not most, chipmakers to scale back aggressive expansion plans made when chip demand outstripped supply. Nonetheless, even with lower capital expenditures (CapEx) in the semiconductor industry, the 2022 forecast stands at $181.7 billion, a new record high, according to IC Insights.

Due to the strong demand for everything digital, from smartphones and PCs to giant televisions and self-driving cars, semiconductor manufacturers’ capital expenditures have been increasing since 2020. According to the report, CapEx budgets increased by 35% in 2021 to $153.1 billion and are expected to increase by 19% in 2022 to $181.7 billion.

However, as companies such as Intel and Micron review their CapEx plans for 2023, IC Insights revises its forecasts and believes that industry spending will fall by 19% to $146.6 billion in 2023. This is only 4.25% less than the $153.1 billion in 2021, but it is significantly higher than capital spending in 2020.

Meanwhile, IC Insights believes that the memory industry will be hit harder than the logic industry because major manufacturers will cut capital expenditures by 25%. Furthermore, Chinese semiconductor firms will have to cut their budgets by around 30% as US sanctions against the People’s Republic’s chip sector will inevitably impact their ability to acquire new production tools.

In any case, a 19% drop in capital spending year over year is the steepest drop since the global financial crisis of 2008-2009, according to IC Insights.

Indeed, semiconductor industry CapEx spending fell 40% year on year in 2009 but only increased 107% in 2010 as the global economy began to improve. Given how rapidly semiconductor CapEx budgets have risen in recent years, we do not expect them to more than double from $146.6 billion in 2023. Meanwhile, virtually all chip manufacturers (including logic and memory chips) anticipate a rebound in demand in 2024-2025. As a result, they believe they will require increased production capacity to meet that demand by the middle of the decade. As a result, spending on new fabs will skyrocket in 2024-2025.

Fabs that are already being built or outfitted, including those in the United States by Intel, Micron, Samsung Foundry, TSMC, and Texas Instruments, will be completed on time, as delaying such projects is costly.

Interestingly, IC Insights does not believe that funding US semiconductor suppliers as part of the US CHIPS and Science Act will result in a significant increase in their spending in 2023 because they will use the money they will receive in grants to replace the money they would have spent on their new fabs.

“In other words,” wrote Bill McClean, president of IC Insights, “the CHIPS and Science Act money is not expected to be ‘additive’ funding to planned semiconductor industry spending, but rather to replace the money a semiconductor producer was going to budget if CHIPS and Science Act funding was unavailable.”

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