AI demand driving market, uncertainty ahead – SEMI

The electronics and chip markets in 1Q25 experience typical seasonality with warnings of atypical shifts

According to SEMI, the market for electronics goods declined by 16 percent sequentially in 1Q25 but remained flat compared to the same quarter the previous year. This data, sourced from TechInsights, indicates a challenging period for the industry. On the other hand, chip sales saw a 2 percent sequential decrease but a significant 23 percent year-on-year increase. This growth is attributed to investments in AI and high-performance computing, driven by high average selling prices for AI processors and related memories.

Despite the overall market fluctuations, SEMI predicts a clear increase in demand based on semiconductor capital expenditure trends. Capital expenditure decreased by 7 percent quarter-on-quarter but surged by 27 percent compared to the previous year. This investment is primarily directed towards expanding manufacturing capacity for cutting-edge logic, high-bandwidth memory (HBM), and advanced packaging to support AI applications.

In the realm of capital expenditure, memory-related investments skyrocketed by 57 percent year-on-year in 1Q25, while non-memory expenditures also grew by 15 percent during the same period. Wafer fab equipment (WFE) spending witnessed a notable 19 percent year-on-year increase in 1Q25 and is projected to rise by an additional 12 percent in Q2. Additionally, test equipment billings experienced a substantial 56 percent year-over-year growth in 1Q25 and are anticipated to further increase by 53 percent in the second quarter.

As of the end of 1Q25, the global installed wafer fab capacity reached 42.5 million wafers per quarter, representing a 7 percent annual increase. Despite these positive indicators, Clark Tseng, senior director of market intelligence at SEMI, issued a cautionary statement regarding the impact of tariff uncertainty on the industry. Tseng highlighted the potential consequences of global trade policy uncertainties, leading some companies to expedite shipments while causing others to pause investments. This dynamic situation could result in atypical seasonality for the remainder of the year as companies navigate evolving supply chain and tariff landscapes.