Semiconductor capital expenditure declines in 2024

U.S. President Joe Biden on Wednesday announced an agreement to provide Intel with $8.5 billion in direct funding and $11 billion in loans under the Chip and Science Act. Intel will use the money for fabs in Arizona, Ohio, New Mexico and Oregon. As we reported in our December 2023 newsletter, the CHIPS Act provides a total of $52.7 billion for the U.S. semiconductor industry, including $39 billion in manufacturing incentives. Prior to the Intel grant, the CHIPS Act had announced a total of $1.7 billion in grants to GlobalFoundries, Microchip Technology and BAE Systems, according to the Semiconductor Industry Association (SIA).

Appropriations under the CHIPS Act moved slowly, with the first appropriation not announced until more than a year after its passage. Some large U.S. fab projects have been delayed because of slow payments. TSMC also noted that it was difficult to find qualified construction workers. Intel said the delay was also due to slowing sales.

Other countries have also allocated funds to boost semiconductor production. In September 2023, the European Union adopted the European Chip Act, which provides for 43 billion euros ($47 billion) of public and private investment in the semiconductor industry. In November 2023, Japan allocated 2 trillion yen ($13 billion) for semiconductor manufacturing. Taiwan enacted a law in January 2024 to provide tax breaks for semiconductor companies. South Korea passed a bill in March 2023 to provide tax breaks for strategic technologies, including semiconductors. China is expected to set up a $40 billion government-backed fund to subsidize its semiconductor industry.

What is the outlook for capital expenditure (CapEx) in the semiconductor industry this year? The CHIPS Act is intended to stimulate capital spending, but most of the impact won’t be felt until after 2024. The semiconductor market fell a disappointing 8.2 percent last year, and many companies are cautious about capital spending in 2024. We at Semiconductor Intelligence estimate total semiconductor capex for 2023 at $169 billion, down 7% from 2022. We forecast a 2% decline in capital expenditure in 2024.

The ratio of semiconductor capital expenditure to market size ranges from a high of 34% to a low of 12%. The five-year average is between 28% and 18%. For the entire period from 1980 to 2023, total capital expenditures represent 23% of the semiconductor market. Despite the volatility, the long-term trend of the ratio has been fairly consistent. Based on expected strong market growth and declining capex, we expect the ratio to fall from 32% in 2023 to 27% in 2024.

Most forecasts for semiconductor market growth in 2024 are in the range of 13% to 20%. Our semiconductor intelligence forecast is 18%. If the 2024 performance is as strong as expected, the company may increase its capital expenditure plans over time. We could see a positive change in semiconductor capex in 2024.