The Semiconductor Cycle: Cautious Optimism Amid Market Softness
The semiconductor industry is known for its cyclical nature, and we currently seem to be in a down part of the cycle according to recent earnings reports from major chipmakers. Both consumer and enterprise markets are soft right now, leading to reduced spending on PCs, smartphones, and data center infrastructure.
However, there are some bright spots looking ahead, especially related to AI and new hardware needed to run AI workloads. While timing is uncertain, it’s likely that compelling consumer AI applications will emerge in the next 1-2 years. This could kick off a new device refresh cycle as consumers want devices like PCs and smartphones capable of running advanced AI.
- Smartphone market is depressed right now after pull forward in demand during pandemic. Unlikely to recover strongly in 2H 2022 as hoped.
- PC market also soft with extended refresh cycles. Some recovery expected but muted for rest of 2022.
- Data center mixed but overall spend slowing. Shift towards AI-focused spending like GPUs. Remains choppy/uncertain. However, AI is massively expanding data center TAM by billions of dollars.
- On-premise enterprise could be sleeper for growth if AI drives more internal workloads. Less Nvidia dependency.
- Timing uncertain, but future AI use cases likely require new specialized hardware. This could restart device refresh cycles in 2023/2024.
Overall a cautiously optimistic view prevails despite current cyclical downturn. The crucial factor is emergence of consumer AI use cases requiring advanced hardware capabilities. This would provide the spark to reinvigorate many semiconductor end markets. The potential is there, but software needs to catch up to take advantage.