Investment by 10 of the world's top chip manufacturers is slated to fall 16% on the year to $122 billion in fiscal 2023 as the push for capacity expansion gives way to concerns over the Chinese economy and a supply glut.

The decline is the first since fiscal 2019 and the largest in the past 10 years.

Investment in memory chips, used mostly for smartphones and personal computers, will drop 44% this fiscal year, while investment in processors will fall 14%.

Six companies are reducing investment this fiscal year: Intel, GlobalFoundries, Micron Technology, Taiwan Semiconductor Manufacturing Co., SK Hynix, and joint operations of Western Digital and Kioxia Holdings.

The drop is caused in large part by rapid capacity expansion over the past several years. U.S.-China tensions over technology have spurred countries to spend money on production expansion.

The 10 companies invested a record $146.1 billion in fiscal 2022. But "there is concern about oversupply in some areas, such as 10- to 14-nanometer chips," said Akira Minamikawa of British research firm Omdia.

The other four companies included in the tally are Samsung Electronics, UMC Electronics, Infineon Technologies and STMicroelectronics.

Inventory as of the end of June at the nine companies that disclose figures went up 10% on the year to $88.9 billion -- about 70% higher than in 2020, before semiconductor shortages disrupted the global supply chain.

Micron plans to cut production by 30% and capital investment by 40% for the year ending August 2024 on excess-inventory concerns. SK Hynix will expand this year's production cuts by a further 5% to 10% and more than halve investment on the year.

The sluggish economy in China, a major market for personal computers, is a factor. The China market "hasn't come back as strongly as people would have expected overall," Intel CEO Pat Gelsinger said in a July earnings call. Analysts expect the company's investment to decline for the first time in three years in fiscal 2023.

Semiconductor prices are sluggish. Memory chips, once in high demand thanks to the pandemic, have been in excess supply since last summer.

Prices of DRAM and NAND memory both fell by more than 40% for August.

"Companies' production cuts have not been sufficient, resulting in downward pressure on prices," said Soichiro Tateishi of the Japan Research Institute. "A rebound in prices on increased demand won't come until next year."

The rush to build factories in recent years has resulted in a lack of needed engineers. The Semiconductor Industry Association of the U.S. expects the industry's shortage of semiconductor engineers, technicians and computer scientists to reach 67,000 jobs by 2030.

The engineer shortage is to blame for the delay in the start of operations at a TSMC factory under construction in Arizona from late 2024 to 2025. The company expects capital investment to decline for the first time in five years in fiscal 2023.

Despite these factors, the market's view that semiconductor demand will continue to grow over the medium to long term remains unchanged. The global market is expected to reach $1 trillion by 2030, according to McKinsey & Co. -- up about 70% from approximately $600 billion in 2021.

The driving force is skyrocketing demand for chips used in electric vehicles and artificial intelligence. According to Omdia, automotive applications now account for only about 10% of the world's semiconductor demand. But the use of chips that control vehicle functions and power semiconductors will increase dramatically with the spread of EVs.

The automotive semiconductor market is expected to reach $83 billion in 2025, up 50% from 2022.

Demand for AI-use semiconductors is expected to triple in 2025 compared with 2022 and to be up 13-fold in 2030, according to Statista.

Many of the major semiconductor companies that have cut back on investment are "constructing factory buildings for now and preparing to start mass production at the best possible timing," said Yuichi Koshiba of Boston Consulting Group.

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