Semiconductor manufacturers could relocate their capacity relatively quickly to serve the suffering sectors more quickly. Risk, from shortage to overproduction.
Chip shortages continue to hit many industries, starting with the automotive sector. “No one has visibility beyond a month and according to semiconductor manufacturers we shouldn’t expect a return to normal before 2023,” lamented a BFM Business analyst a few days ago.
While many large foundries such as Intel or TSMC have announced the strengthening of their production capacities and/or the opening of new factories, these measures will take some time. Too much time for customers whose supply has dried up due to the lack of these components.
But there is little hope that this shortage will end a little sooner than expected. A turn in the computer market (after the outbreak due to restrictions in 2020-2021) and the fall of cryptocurrencies, which also brings with it graphics cards (which are used for mining), could give oxygen to the semi giants.
-8% this year for PC sales after two years on fire
Schematically, semiconductor makers could shift capacity to more quickly serve ailing sectors thanks to weaker demand from PC, smartphone and graphics card makers.
Let’s start with the computer market. Research firm IDC expects global sales to fall by more than -8% this year to around 321 million units. The machine recovery, both at the personal and business levels, now appears to be complete after historic jumps of +13% and +15% in 2020 and 2021, respectively.
In addition, high inflation (8.6% in the United States in May) is weighing on demand for technology and connected products such as smartphones, sales of which are also expected to decline this year.
The trend is illustrated by the fact that Intel temporarily froze hiring in its PC chip division in June, among other downsizing measures, while memory maker Micron points out that “the industry’s demand environment has deteriorated.
Reduced latency on microcontrollers
When it comes to cryptocurrencies, the price drops seen for several weeks are causing the demand for graphics cards to collapse. Just look at their prices: according to the specialist site Toms Hardware, they already fell by 15% in May with the return of stock at retailers.
Sector leader Nvidia of the U.S. has also slowed its hiring pace and is replenishing its inventory. The market has taken this change in the technology climate well: the manufacturer’s share price fell by 48% in the first half of the year.
As a result, all major foundries are revising their forecasts downwards while shifting their capacities to serve the broken chip sectors.
So if chip lead times were at a near-record 27 weeks in May, Susquehanna Financial Group cited The Wall Street Journalwait times for microcontrollers, those ubiquitous chips in cars in particular, have shortened.
Nor should we expect this shortage to end suddenly. According to Gartner, chip factories around the world were operating at nearly full capacity in the first quarter, but a reallocation of capacity could allow for completion by the end of the year rather than 2023.
Will capacity increase when demand drops?
However, this development can have a perverse effect. Combined with manufacturers’ initiatives to increase their output, particularly through new factories, this could eventually lead to overproduction.
The sector “is characterized by alternating phases during which supply is greater than demand and phases when it is the other way around”, Mathilde Aubry, teacher-researcher, holder of the chair of digital transformation of EM Normandy, emphasized in a report at the end of 2021.
As a result, “when all the new factories (factories, ed.) are in operation, the price increases we may currently experience will lead to a decrease in demand. The result will then be a new phase of oversupply (a supply greater than These factories may not be profitable , especially since they are quickly becoming obsolete in this industry”.
So the question remains whether the mega-investments of manufacturers like Intel will be preserved or not. Or if Europe wishes to modify the Microelectronics Alliance aimed at reconnecting with European semiconductor manufacturing.
20 to 30 billion euros will be dedicated to start, European Commissioner Thierry Breton said, and up to 20% of the recovery plan, or 145 billion euros, will go to fourth-generation chips.