Robust AI demand was buoyed by growing CAPEX from cloud service providers and CoWoS capacity expansion. However, despite projections of CoWoS capacity more than doubling by 2024 end, it remains insufficient to meet the soaring demand for AI.
The global foundry industry’s revenue declined about 5% QoQ but grew 12% YoY in Q1 2024 and the sequential decline in the industry revenue in Q1 2024 was not solely due to seasonal effects. It was also impacted by a slower recovery in demand for non-AI semiconductors, spanning sectors such as smartphones, consumer electronics, IoT, automotive, and industrial applications.
This trend resonates with the observations of TSMC’s management regarding the sluggish pace of recovery in non-AI demand. Consequently, TSMC has revised down the projected growth for the logic semiconductor industry from over 10% to 10% in 2024. TSMC‘s Q1 results have slightly exceeded market expectations. The company has raised its forecast for datacenter AI revenue, anticipating a more than doubling year-over-year in 2024. Additionally, TSMC has extended its guidance for a 50% CAGR in AI revenue through 2028, indicating sustained and robust momentum in AI demand.
Despite expectations for CoWoS capacity to expand more than double year-over-year by the end of 2024, it still falls short of meeting the strong AI demand from customers. Notably, TSMC’s 5nm capacity utilization rate has remained strong due to robust demand from AI accelerators. Analyst Adam Chang commented, “We’ve observed more evidence to support that the AI demand is real, with increasing CAPEX of cloud service providers adopting the AI hardware first and the following would be enterprises. We expected the demand for AI to remain strong in 2024, and probably more upsides in 2025. However, non-AI demand remained sluggish, but we think the inventory set-up is promising after several quarters of de-stocking.”
Samsung Foundry’s revenue decreased primarily due to smartphone seasonality, maintaining its second position with a 13% market share in Q1 2024. The Samsung S24 smartphone remained a bright spot, while the demand for mid-low-end smartphones was relatively weak. The company expects revenue to rebound with double-digit growth as demand improves in Q2 2024. SMIC’s quarterly results surpassed market expectations, and the company secured the No. 3 position in foundry revenue market share in Q1 2024 for the first time, as demand recovery begins in China, including CIS, PMIC, IoT, and DDIC applications. SMIC expects to continue growing in Q2 as inventory restocking broadens out, potentially indicating mid-teens growth in 2024 compared to the prior mid-single-digit growth guidance in the last earnings call.
Both UMC and GlobalFoundries indicated that consumer and smartphone demand has bottomed. However, auto demand remained mixed, with UMC expecting it to be muted in the near term, while GlobalFoundries expects revenue to trend up in Q2 2024. Exiting Q1 2024, the industry started to observe green shoots of demand recovery even if the progress is slow. The channel inventory becomes normalized and leaner after several quarters of destocking. Analysts continue to believe that strong demand for AI and a mild recovery in end demand will serve as the main growth drivers for the industry in 2024.
