The semiconductor industry is still in a “transition year,” says the CEO behind the West's only producer of silicon wafers, as manufacturers try to navigate their way through the end of a years-long slump in demand.

During the pandemic, chipmakers enjoyed bumper profits due to stay-at-home consumers snapping up electronics and supply shortages. But the end of the pandemic led to a slump, as manufacturers and retailers were faced with increased stockpiles and consumers who stopped buying as much as they returned outside.

Chip firms hope the AI boom will drive demand for their products, but the CEO of a major German semiconductor firm thinks the industry needs to wait just a bit longer for good times to return.

“We are still at the end of a down cycle,” Michael Heckmeier, CEO of German chip supplier Siltronic, said after the opening of the company’s latest wafer fab in Singapore. “2024 is a transition year.”

Instead, Heckmeier sees the industry recovering next year. “We are still preparing for the big growth to come…induced by mega trends such as artificial intelligence, electro-mobility, and digitalization.”

Some chip companies, like Nvidia and its suppliers, are already benefiting from the AI boom. Nvidia, whose GPUs are key to training large language models, reported a revenue of $60.9 billion in 2023, a 126% jump.

Yet most of the industry is warning that demand could stay restrained this year.

In April, Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, scaled back its outlook for 2024, warning that the smartphone and personal computer markets remain weak.

That same month, another contract chipmaker, United Microelectronics Corporation, said “demand remains muted” for the automotive and industrial segments due to a slower-than-anticipated pace of “inventory digestion”.

Another chip win for Singapore

Based in Munich, Siltronic manufactures silicon wafers used in the chipmaking process. The company is the only Western wafer manufacturer.

In April, Siltronic cut its 2024 outlook, citing the “further development of demand weakness.”

Yet on Wednesday, Heckmeier said in his opening speech that new technologies “underscore the growing demand" for semiconductors and wafers, and that the company is “fully prepared” to meet the demand with its new plant in Singapore.

Siltronic has invested $2.2 billion in its new wafer plant, its third in Singapore. The amount is the largest investment in the company’s history. The plant will be able to produce 100,000 wafers per month by the end of the year, and Heckmeier suggested the fab could reach full capacity within five years. Siltronic opened its first fab in Singapore in 1999.