By Zhai Shaohui, Liu Peilin and Denise Jia
Remember the global semiconductor shortage a few months ago? It’s over.
Now, rapidly shrinking demand for consumer electronics is causing canceled orders and unsold inventories at integrated circuit makers including Taiwan Semiconductor Manufacturing Co (TSMC), Advanced Micro Devices Inc (AMD) and Nvidia.
It’s a stark contrast to the disruptions the chip shortage has caused to makers of cars, smartphones, computers and other goods that rely on advanced electronics.
“This round of business sentiment is returning so quickly that chip designers were struggling to find production capacity just last year, but now they find that the chips won’t sell,” said analyst Xie Ruifeng from the research institute of semiconductor industry market ICwise.
A mobile industry veteran told Caixin that the multibillion-dollar smartphone industry had cut at least three rounds of orders for chipmakers so far in 2022.
SMARTPHONE, REQUEST for PC in TKURINA
Global shipments of 5G smartphones will shrink to 150 million units in 2022 and demand for 5G phone chips will fall by 100 million to 120 million units, market research firm Strategy Analytics estimated.
Meanwhile, smartphone makers have been stuck managing high inventories. In June, the mobile industry veteran estimated that the global stock of finished smartphones reached 200 million units.
Many smartphone makers built six-month inventories based on more optimistic expectations of 2021, Xie said.
Phone makers also stocked up on components after experiencing chip shortages, with high inventories focused on mid-range and low-end 5G chips, said Sravan Kundojjala, associate director of smartphone component technology services at Strategy Analytics.
Phone makers have also stockpiled large inventories of components such as radio frequency chips. Mr Sravan predicted supplies could last until mid-2023.
Demand for smartphones and personal computer (PC) chips accounts for over half of global foundry capacity.
Automotive chips are still in short supply, but make up less than 10 percent of the total chip market.
An analyst said smartphones and PCs are having a decisive impact on the semiconductor industry.
The PC market also faces declining demand.
Consulting group Gartner estimated that worldwide PC shipments reached 72 million units in the second quarter of 2022, down nearly 13 percent year-on-year — the biggest decline in nine years.
POOR CHIP DROP
TSMC, the world’s largest contract chipmaker, faces reduced orders from four of its biggest customers, reflecting slowing global demand.
JPMorgan Chase said in a report in early September that AMD, Nvidia, Qualcomm and MediaTek cut chip orders with TSMC.
While reporting a record quarterly profit increase for the July-September quarter last week, TSMC warned of a possible downturn for the semiconductor industry in 2023 and cut its capital spending forecast by 10 percent in 2022.
Other semiconductor companies are also facing difficult conditions. AMD lowered its third-quarter revenue forecast, citing a significant slowdown in the PC market.
Intel, Nvidia and Micron Technology all issued muted opinions.
In the first half of 2022, macroeconomic headwinds and several “black swan” factors combined to cause demand for consumer electronics to decline, with smartphones and PCs bearing the brunt.
Micron predicted that global PC shipments will fall by 10 percent to 20 percent in 2022, while the smartphone market will decline by less than 10 percent.
To reduce inventories, some chip makers have started to cut prices.
Following order cancellations by Samsung, Shanghai-based mobile chipmaker UNISOC may cut its prices by 20 percent to 30 percent in the second half, a semiconductor analyst estimated.
For example, a UNISOC 4G smartphone chip that sold for almost $17 last year now costs around $9.
Qualcomm will cut the price of its new generation of mid-range 5G mobile phone chips by 10 percent to 15 percent in the second half. MediaTek will cut costs in the same way for some 5G chips, Isaiah Research estimated.
WHERE IS THE END?
It is difficult to predict when the consumer market will bottom out and demand will recover amid war, political turmoil and economic uncertainty.
The market is concerned that new capacity built amid a historic chip shortage since the second half of 2020 will gradually come online starting in late 2022.
This means that the global chip industry will enter a sustained period of overcapacity.
Wafer demand in 2023 is expected to be flat with 2022 or fall slightly, while capacity is expected to grow by about 7 percent in 2023, signaling oversupply, according to Mr. Dale Gai, director of research at Counterpoint Research.
However, Mr Gai said demand for advanced smartphone chips continued to expand, reflecting strong demand from high-end brands including the iPhone.
The overall industry could see demand bottom out in 2024, he said.
CHINA’S RESILIENCE
China, however, presents a different picture. As the United States tightens sanctions on the country’s semiconductor sector, domestic chipmakers are accelerating efforts to develop alternatives.
The latest round of restrictions mainly targets advanced chips, which are generally characterized as process nodes smaller than 28 nanometers.
In semiconductor design, smaller process node sizes indicate more advanced technology.
Power management integrated circuit (PMIC) chips, which manage battery power charging and sleep modes and voltage scaling down or up in electronic devices, do not rely on advanced process nodes.
The PMIC market has long been dominated by global players, including Texas Instruments and Infineon Technologies. Now, capacity is slowly shifting to Chinese manufacturers, Mr. Gai said.
In the long term, global wafer capacity is in tight balance or regional oversupply. However, China is short of supply as capacity expansion is one of the country’s main objectives, ICwise’s Mr Xie said.
The momentum of China’s wafer foundry expansion has not slowed.
In August, Semiconductor Manufacturing International Corp (SMIC) co-chief executive Zhao Haijun said at the company’s second-quarter earnings conference call that the domestic contract chip industry still has bright prospects.
“We will not change our plans for long-term capacity expansion and development,” he said.
In addition to expanding the existing 12-inch and 8-inch wafer production lines, SMIC is also building three new 12-inch wafer projects in Beijing, Shenzhen and Shanghai.
Once completed, the company’s total capacity will double.
This story was originally published by Caixin Global.
