IC Insights: The global semiconductor market is expected to grow 11% year-on-year next year

IC Insights' new edition of the McLean Report will be released in January next year, providing a preliminary overview and annual forecast for the semiconductor industry from 2022 to 2026.

IC Insights used this to illustrate the analyst firm's consistent data estimation mode, with the first quarter of a certain year and the fourth quarter of the previous year (1Q/4Q) becoming the benchmark. The number is labeled as a "directional indicator" because the actual 1Q/4Q change does not directly predict the final annual semiconductor market growth in a given year, but more accurately describes the expected direction and year-on-year strength of the annual semiconductor market growth rate. For example, 2017 1Q/4Q growth of 0%, the semiconductor market annual growth rate was 25%, while 2011 1Q/4Q growth of 1%, but the annual semiconductor market growth rate was only 1%. The difference is that the 1Q/4Q change is compared with the 1Q/4Q change of the previous year, that is, the year-on-year growth is very critical.

Excluding the years following the severe semiconductor industry recessions in 1985 and 2001, IC Insights believes that the quarterly IC market changes in 1Q/4Q are also good indicators of the direction and strength of future annual semiconductor market changes. The reason why this model can reflect the direction of the annual growth rate of the semiconductor industry well is the seasonality of the semiconductor market itself. Given the typical quarterly seasonality pattern of the semiconductor industry, the first quarter essentially establishes a "foundation" on which future quarterly semiconductor market growth will be built.

In general, when the 1Q/4Q performance of a certain year is better than the results of the 1Q/4Q of the previous year, the annual growth rate of that year can be expected to be better than that of the previous year. When the 1Q/4Q performance of the current year is worse than that of the previous year, the opposite is usually the case.

From 1984 to 2020, the average seasonal quarter-on-quarter decline in the 1Q/4Q global semiconductor market was 2%. In the first quarter of 2020, the semiconductor market fell 3% from the fourth quarter of 2019, slightly below the historical average. The 1Q21/4Q20 semiconductor market change increased by 3% (quarter-on-quarter), which is much better than the 1Q20/4Q19 IC change quarter-on-quarter increase of -3%.

Therefore, IC Insights believes that the full-year annual growth rate of the semiconductor market in 2021 (26%) is likely to be higher than the 13% growth of the IC market in 2020. In contrast, the semiconductor market is expected to decline by 3% since 1Q21/4Q21, and semiconductor market direction indicators point to much lower growth in 2022 than in 2021 (11% in 2022 and 26% in 2021). If the 1Q22/4Q21 semiconductor market growth surprises to be higher than -3%, then our current forecast of 11% for next year may need to be revised upward.

It is worth noting that the total growth of the 1Q21/4Q20 semiconductor market is 3%, which is the first time since 2011 that the 1Q/4Q IC market has grown positively (as shown below). As shown in the figure, in the 15 previous quarters of positive growth since 1984, except for three of them (the shaded part in the figure), the semiconductor market has achieved strong double-digit growth throughout the year. For 2021, IC Insights currently predicts that the global semiconductor market will grow by 26%, slightly higher than the average annual growth rate of the global semiconductor market of 24% since 1984, with positive growth in the 1Q/4Q IC market.

Although the first quarter of the year is generally considered a "down" quarter due to seasonal factors, a positive 1Q/4Q market is not uncommon. In the 38 years from 1984 to 2021, there were 16 positive growths in the 1Q/4Q market (accounting for 42%). Even if the time span is narrowed to the most recent time range from 2000 to 2021, there were seven 1Q/4Q semiconductor market changes that were positive (i.e., the numbers were positive).