Source: Industry Observation on Semiconductors.

According to the report from the Semiconductor Industry Association (SIA), in 2024, global sales of semiconductor chips are expected to increase by 19.1% to 627.6 billion USD, with a projected growth rate reaching double digits in 2025.

SIA stated that the figures for 2024 set a new record, while the total for 2023 was $526.8 billion. John Neuffer, CEO of the semiconductor industry lobbying group SIA, mentioned in an interview with GamesBeat that the reason is certainly the astonishing demand for AI processors and Memory Chips.

The actual growth rate of 19.1% exceeded SIA's forecast of 13%, while the growth for 2024 stands in contrast to the contraction of 8.2% in 2023. Due to AI, there has been a huge fluctuation in demand. This is also $NVIDIA (NVDA.US)$ one of the reasons for becoming one of the most valuable companies in the world (valued at $3.15 trillion).

Greg LaRocca, SIA's director of market research and economic policy, stated in an interview that chip sales are expected to grow by 11.2% by 2025. This is important for the economy, as chips are at the core of all electronic products and are a vital part of the Technology food chain.

This data was released at an important moment in the national discussion, as President Donald Trump has promised to impose tariffs on semiconductor chips coming not only from China but also from Taiwan. While he took action against Mexico, China, and Canada last weekend, he has yet to impose tariffs on Taiwan or chips. (Tariffs on Mexico and Canada have been postponed for 30 days.)

Last Friday, NVIDIA CEO Jensen Huang visited Trump at the White House, emphasizing the importance of the Semiconductor Industry and the USA's leadership in the AI field. NVIDIA's chips come from Taiwan. The Consumer Technology Association estimates that tariffs could increase the prices of game consoles bought by American consumers by 40%, smart phones by 26%, and laptops by 46%.

SIA is also a strong advocate of the CHIPS and Science Act, which has bipartisan support and allocates $52 billion to rebuild the USA's chip manufacturing industry. Intel pointed out that it has received $2 billion in funding for its chip factory in the USA. Whether the new government will continue to support this act remains to be seen, as supporters are calling for more funding.

"After all these factories are built, started, and put into operation, by 2032, the USA's chip output may grow by about 14%. This takes time. It is an absolutely massive Industry. A growth rate from 10% to 14% is actually a very good number. This shows how difficult growth can be. Of course, the situation is the same in Europe," said Duncan Stewart, head of Deloitte's Semiconductor practice, in an interview for a report this week.

In terms of chip volume, fourth-quarter sales reached $170.9 billion, a 17.1% increase compared to the fourth quarter of 2023, and a 3.0% increase compared to the third quarter of 2024. Global sales in December 2024 amounted to $57 billion, a decrease of 1.2% compared to the total in November 2024.

Monthly sales are compiled by the World Semiconductor Trade Statistics Organization (WSTS) and represent a three-month moving average. In terms of revenue, SIA represents 99% of the USA semiconductor industry and nearly two-thirds of non-USA chip companies.

Neuffer stated, "In 2024, global semiconductor market sales are expected to hit a record high, with annual sales surpassing $600 billion for the first time, and the market is expected to achieve double-digit growth in 2025. Semiconductors support almost all modern technology, including Medical Devices, communications, defense applications, AI, advanced Transportation, etc., and the long-term outlook for the Industry is very strong."

Regionally, annual sales increased in the Americas (44.8%), China (18.3%), and Asia Pacific / Other (12.5%), but decreased in Japan (-0.4%) and Europe (-8.1%). Monthly sales in the Americas grew in December (3.2%), but decreased in Asia Pacific / Other (-1.4%), China (-3.8%), Japan (-4.7%), and Europe (-6.4%).

"With the growth of global semiconductor sales, domestic chip manufacturing capacity in the USA is expected to triple by 2032, placing the country in a favorable position, strengthening its supply chain and helping to meet the growing global demand," said Neuffer. "To keep the USA at the forefront of chip technology, leaders in Washington should promote policies that enhance semiconductor production and innovation, strengthen the high-tech workforce, and restore America’s trade leadership."

In 2024, several areas of the Semiconductors products performed prominently. The sales of logic products reached 212.6 billion USD in 2024, becoming the largest product category by sales. The sales of Memory products ranked second, growing by 78.9% in 2024, with a total of 165.1 billion USD. The sales of the Memory subset DRAM products increased by 82.6%, representing the largest percentage growth among all product categories in 2024.

Neuffer stated that logic (including processors), Memory, and analog parts usually follow different trajectories, as many different types of Semiconductors serve all electronic industries. Logic and Memory have continuously been driven by the demand for AI Servers in Datacenters as well as for AI PCs in offices and homes. However, sometimes logic has good years while Memory can have bad years, depending on capacity.

LaRocca mentioned that the SIA has not yet classified AI Chips separately, but most AI technology is embedded within Computer Systems that use logic chips. He noted that this category grew by 81% in 2024.

"This is an astonishing growth rate we have never seen before," Neuffer said. "This is truly rapid growth across the board."

However, he pointed out that when it comes to fluctuations in areas such as storage chips, the Industry can be "extremely unstable."

Neuffer downplayed the prospect of a trade war as "concerning."

"Our supply chains are heavily reliant on Global trade. The operation of these supply chains is crucial for us. On the other hand, about three-quarters of our customers are overseas. Therefore, Global trade is an important factor for our success," Neuffer stated.

Neuffer indicated that he does not want to assume what might happen. He pointed out that details matter, such as what happens to chips after they are shipped to the USA and eventually enter the electronic products purchased in the USA. It also depends on which countries will be subject to tariffs and retaliation.

In terms of Education politicians, it was stated that there is still work to be done in helping everyone understand how the supply chain operates.

"We believe that our company has made very significant commitments to manufacture more products in the USA, and while this government views it as a priority to make more products in the USA, measures that increase manufacturing costs in the USA are problematic," Neuffer said. "We really believe this is an opportunity to formulate a comprehensive Global Strategy that includes multiple aspects, such as continuing to provide incentives to make the USA attractive for manufacturing, increasing some design incentives, creating a policy to regain our trade leadership around the world, as our Industry heavily relies on Global trade."

Neuffer stated that the CHIPS and Science Act is extremely important for the Industry and crucial for the National Security.

"But going it alone is not a Global Strategy. It is part of a larger Global Strategy. This larger Global Strategy includes immigration policies to ensure the talent we cultivate here stays in the country, as well as a broader workforce strategy to train talent domestically," he said.

He stated that funding applied sciences and basic sciences is also crucial for maintaining the competitiveness of the USA. Some politicians oppose providing funding to companies to build chip factories. However, Neuffer pointed out that other countries have used subsidies to pull manufacturing out of the USA, and now we are lagging behind.

"This is why we have been stuck for many years. Our federal government has not been involved. Other governments with chip industries around the world have been going around us, possibly bewildered by our predicament, resulting in a sharp decline in our manufacturing over the past 30 years or so," he said. "The CHIPS Act has reversed this situation, but if incentives are reduced again, our manufacturing footprint will also decrease. That is the reality."

LaRocca stated that the difference in incentives means that the cost of building and operating a wafer fab in the USA, without any incentives, is 25% to 50% higher than in other countries. Neuffer stated that there are also reasons such as supply chain resilience and National Security for keeping chip manufacturing domestically. He pointed out that the incentives from the CHIPS and Science Act have generated nearly $500 billion in investments in the USA. By 2032, the USA's chip manufacturing capacity could potentially double. Neuffer stated that this growth rate exceeds any other place in the world.

During the pandemic, chip sales were disrupted. While the demand for personal computers surged as people worked from home, factory shutdowns and supply chains could not operate normally during the pandemic. The SIA stated that the Industry began to decline in the second half of 2022, leading to a global sales drop of 8.2% in 2023. Compared to 2023, the growth of Memory Chips in 2024 is expected to reach 70%.

Overall, the economic cycle of the trachea Industry from oversupply to shortage is 18 months. Part of the reason is that building a brand new factory costs billions of dollars and takes a lot of time. With changes in demand, it is difficult to quickly increase capacity, thus causing price fluctuations.

Editor/Rocky