Throughout its 60-year history, the IC industry has been known for its cyclical behavior, according to ICinsights. Looking back to the mid-1970s, the IC market did not have a period of consecutive declines of more than three-quarters of a percent. After a 9% decline in the IC market in 3Q22, the 3Q2022 to 1Q2023 timeframe would mark the seventh three-quarter decline in the IC market on record, assuming a decline in the IC market in 4Q22 and 1Q23 (Figure 1).

As the chart shows, the IC market has not seen a three-quarter decline since Q4 2018 through Q2 2019. In addition, the three quarter decline in 2001 was the largest on record, with three double-digit declines, which resulted in a 33% annual decline - the worst annual decline in the IC market on record.

Given that the IC industry has never seen four consecutive quarters of IC market declines, the IC market is expected to return to growth starting in 2Q23. While the U.S.-China trade war is an unpredictable "wildcard" for the near-term IC market growth scenario, 2Q23 is currently expected to show modest growth of 3 percent. However, even if IC sales start to rebound from 2Q23, the total IC market is still expected to decline by 6% next year.

Chip decline, worse than expected

The global chip market began to contract year-on-year in the third quarter, with China and Asia leading the way, while Europe's reduction in consumer electronics keeps it growing for now.

September sales data from the Semiconductor Industry Association and data from a report compiled by the World Semiconductor Trade Statistics Organization suggest that 2023 will be one of the years of cyclical decline in the industry. However, this could be one of the worst cases, as the world faces the dual global macroeconomic pressures of inflation and recession, made worse by the ongoing war in Ukraine.

The SIA said the global chip market grew at a negative 3.0 percent in September. Since these figures are based on a three-month moving average, they are representative of the third quarter of FY22. Compared with the second quarter, the decline was 6.3%. The third quarter is typically the strongest quarter, as companies prepare for consumer sales in the fourth quarter, with sequential growth typically up to about 10%.

This 6.3% sequential decline was slightly lower than Future Horizons chief analyst Malcolm Payne's estimate. In his most pessimistic estimate for 3Q22, he predicted a 6.2 percent decline. WSTS data show that the global chip market was worth $141 billion in the third quarter, slightly below the University of Pennsylvania's worst-case estimate of $144 billion.

Payne said, "This is a little worse than the bear end of our forecast range, with a total growth rate of at most 2% in 2022, confirming our early warning forecast and reiterating the inevitable double-digit year-over-year decline in 2023." He said in an email note sent to clients.

China's chip market shrank 14.4 percent in the third quarter from a year ago. The rest of Asia-Pacific fell 7.7 percent compared with a year ago. China once held about a third of the global chip market, and its huge market share means its performance has a significant impact on its global position.

Unusually, Europe has become the fastest growing region, with a growth rate of 12.4%, but this growth is expected to slow down and eventually tend to contract. The Americas grew 11.5 percent year-over-year.

The chip market in the Americas has been growing very strongly recently at an annual rate of 40 percent. Japan's annual growth rate fell from 16.1% in June to 5.6% in September.

"After strong growth in the first half of 2022, global semiconductor sales have slowed in recent months, with sales declining year-over-year in September for the first time since January 2020 amid a series of macroeconomic headwinds," SIA CEO John Neuffer said in a statement.

The monthly data given by the SIA is a three-month average, although the data source, World Semiconductor Trade Statistics, tracks monthly data. the SIA and other regional semiconductor industry bodies choose to use the average data because it balances the actual data, which usually shows a trough at the beginning of the quarter and a peak at the end of the quarter.