By Zhai Shaohui, Liu Peilin and Denise Jia
Remember the worldwide semiconductor scarcity a couple of months in the past? It’s over.
Now, the rapidly shrinking demand for client electronics is inflicting canceled orders and unsold stockpiles at makers of built-in circuits, together with Taiwan Semiconductor Manufacturing Co (TSMC), Advanced Micro Devices Inc (AMD), and Nvidia.
It’s a stark distinction with the disruptions that chip shortages brought on for makers of autos, smartphones, computer systems, and different items that depend on superior digital units.
“This round of business sentiment is reversing so fast that chip designers were struggling to find production capacity only last year, but now they find chips won’t sell,” mentioned analyst Xie Ruifeng from the semiconductor trade market analysis institute ICwise.
A cellular trade veteran advised Caixin that the multibillion-dollar smartphone trade had reduce no less than three rounds of orders to chipmakers up to now in 2022.
SHRINKING SMARTPHONE, PC DEMAND
Global 5G smartphone shipments will shrink by as a lot as 150 million models in 2022, and demand for 5G cellphone chips will fall by 100 million to 120 million models, market analysis agency Strategy Analytics estimated.
Meanwhile, smartphone producers are caught managing excessive inventories. In June, the cellular trade veteran estimated that the worldwide stockpile of completed smartphones reached 200 million models.
Many smartphone producers constructed up six months of stockpiles based mostly on 2021’s extra optimistic expectations, Mr Xie mentioned.
Phone-makers additionally stocked up on parts after experiencing chip shortages, with excessive inventories concentrated within the mid-to low-end 5G chips, mentioned Mr Sravan Kundojjala, affiliate director of smartphone part expertise companies at Strategy Analytics.
Phone-makers have additionally amassed large inventories of parts equivalent to radio frequency chips. Mr Sravan projected that provides may final till mid-2023.
Demand for smartphones and private computer systems (PCs) chips accounts for over half of worldwide foundry capability.
Automobile chips are nonetheless in brief provide however account for lower than 10 % of the overall chip market.
One analyst mentioned smartphones and PCs have a decisive impression on the semiconductor trade.
The PC market additionally faces declining demand.
Consulting group Gartner estimated that worldwide PC shipments totaled 72 million models within the second quarter of 2022, down practically 13 % yearly – the sharpest decline in 9 years.
WEAK CHIP OUTLOOK
TSMC, the world’s largest contract chipmaker, faces lowered orders from 4 of its largest prospects, reflecting slowing world demand.
JPMorgan Chase mentioned in a report in early September that AMD, Nvidia, Qualcomm, and MediaTek slashed chip orders with TSMC.
While reporting a report quarterly revenue surge for the July-to-September quarter final week, TSMC warned of a possible decline for the semiconductor trade in 2023 and reduce its capital spending forecast by 10 % in 2022.
Other semiconductor corporations are additionally dealing with harsh situations. AMD lowered its income forecast for the third quarter, citing a major weakening within the PC market.
Intel, Nvidia, and Micron Technology all issued subdued outlooks.
In the primary half of 2022, macroeconomic headwinds and several other “black swan” components mixed to trigger client electronics demand to plummet, with smartphones and PCs bearing the brunt.
Micron predicted that world PC shipments would decline by 10 % to twenty % in 2022, whereas the smartphone market would lower by lower than 10 %.
To scale back inventories, some chipmakers have begun slashing costs.
After order cancellations from Samsung, Shanghai-based cellular chipset maker UNISOC could decrease its costs by 20 % to 30 % within the second half, a semiconductor analyst estimated.
For instance, a UNISOC 4G smartphone chip that bought for nearly US$17 final yr now prices about US$9.
Qualcomm will reduce the worth of its new era of mid-range 5G cell phone chips by 10 % to fifteen % within the second half. MediaTek will reduce prices by the identical for a number of 5G chips, Isaiah Research estimated.
WHERE IS THE BOTTOM?
It is tough to foretell when the patron market will backside out and demand will rebound amid struggle, political turmoil, and financial uncertainty.
The market is worried that new capability constructed amid a historic chip scarcity for the reason that second half of 2020 will regularly come on-line beginning on the finish of 2022.
This means the worldwide chip trade will enter a sustained interval of overcapacity.
Wafer demand in 2023 is predicted to be flat with 2022 or decline barely, whereas capability is predicted to develop about 7 % in 2023, signaling oversupply, in response to Mr Dale Gai, analysis director at Counterpoint Research.
However, Mr. Gai mentioned demand for superior smartphone chips continued to broaden, reflecting strong demand by high-end manufacturers, together with iPhone.
The total trade would possibly see demand backside out in 2024, he mentioned.
CHINA’S RESILIENCE
China, nonetheless, presents a unique image. As the United States tightens sanctions on the nation’s semiconductor sector, home chipmakers are accelerating efforts to develop alternate options.
The newest spherical of restrictions primarily targets superior chips, typically characterised as having course of nodes smaller than 28 nanometers.
In semiconductor design, smaller course of node sizes denote more-advanced expertise.
Power administration built-in circuit (PMIC) chips, which handle battery energy charging and sleep modes and scaling of voltages down or up on digital units, don’t depend on superior course of nodes.
The PMIC market has lengthy been dominated by world gamers, together with Texas Instruments and Infineon Technologies. Now, capability is slowly shifting in direction of Chinese producers, Mr Gai mentioned.
In the long run, world wafer capability is in tight steadiness or regional oversupply. Still, China is in brief provide as increasing capability is likely one of the nation’s core goals, ICwise’s Mr Xie mentioned.
China’s wafer foundry enlargement momentum has not slowed.
In August, Semiconductor Manufacturing International Corp (SMIC) co-chief government Zhao Haijun mentioned on the firm’s second-quarter earnings convention that the home contract chip trade nonetheless has glorious prospects.
“We will not change our plans for long-term capacity expansion and development,” he mentioned.
In addition to increasing its current 12-inch and 8-inch wafer manufacturing strains, SMIC can be constructing three new 12-inch wafer tasks in Beijing, Shenzhen, and Shanghai.
Once accomplished, the corporate’s whole capability will double.
This story was initially revealed by Caixin Global.