Semiconductor outlook: typical Q1, but atypical shifts ahead
The global semiconductor manufacturing industry entered 2025 with typical seasonal patterns. However, looming tariff threats and evolving supply chain strategies are expected to create atypical seasonality for several industry segments as the year progresses, reports SEMI.
Despite heightened trade policy risks, current data for the first quarter of 2025 indicate that electronics and IC sales have not been directly impacted by the newly announced tariffs.
Electronics sales declined 16% quarter-over-quarter (QoQ) in Q1 2025 and remained flat year-over-year (YoY), consistent with traditional seasonal patterns. IC sales contracted by 2% QoQ but posted a robust 23% YoY increase, reflecting ongoing investment in AI and high-performance computing infrastructure, according to the Q1 2025 Semiconductor Manufacturing Monitor (SMM) report released by SEMI in collaboration with TechInsights.
"While the first quarter of 2025 did not see a direct impact from new tariffs on electronics and IC sales, the uncertainty around global trade policies is prompting some companies to accelerate shipments and others to pause investments," says Clark Tseng, Senior Director of Market Intelligence at SEMI, in a press release. "This push-pull dynamic could lead to atypical seasonality for the remainder of the year as the industry adapts to shifting supply chain and tariff landscapes."
Semiconductor CapEx declined 7% QoQ but surged 27% YoY, as manufacturers continued to invest heavily in leading-edge logic, high-bandwidth memory (HBM) and advanced packaging to support AI-driven applications. Memory-related CapEx soared 57% YoY in Q1 2025, while non-memory CapEx expanded by 15% YoY, underscoring the industry's focus on innovation and resilience.
Wafer fab equipment (WFE) spending rose 19% year-over-year in Q1 2025 and is projected to increase another 12% in Q2, driven by strong investments in advanced logic and memory production to support the rapid adoption of AI semiconductors. Test equipment billings surged 56% year-over-year in Q1 and are expected to grow by 53% in Q2, reflecting the heightened complexity and stringent performance requirements of AI and HBM chip testing. Assembly and packaging equipment also registered double-digit growth, benefiting from the industry's push toward higher-density integration and advanced packaging solutions.
"The WFE market is poised for steady growth driven by government investments and semiconductor advancements, particularly in AI and emerging technologies," adds Boris Metodiev, Director of Market Analysis at TechInsights. "However, geopolitical uncertainties, including export restrictions and potential tariffs, pose significant risks that could impact this positive trajectory."
Aligned with the growth in capital equipment investments, global installed wafer fab capacity is on the rise and is projected to surpass 42.5 million wafers per quarter (in 300mm wafer equivalents), reflecting a 2% QoQ and 7% YoY increase in Q1 2025. China continues to lead all regions in capacity expansion, though the pace of growth is expected to moderate in the coming quarters. Notably, Japan and Taiwan are experiencing the strongest quarterly capacity gains, driven by significant investments in power semiconductor manufacturing in Japan and the ramp-up of a leading-edge foundry in Taiwan.
Looking ahead, SEMI and TechInsights expect the industry to experience atypical seasonal patterns in 2025 as companies navigate the dual challenges of trade policy uncertainty and supply chain adaptation. While demand for AI and data centre technologies remains a bright spot, other segments may see delayed investment or demand shifts as the market responds to evolving tariff and geopolitical uncertainties.