Oversupply of semiconductors resolved after autumn 2023


Release time:

2023-02-16

The oversupply of semiconductors is long-lasting. In addition to consumer-facing electronics such as smartphones and personal computers, data center investment by IT giants is also decelerating. Centering on cutting-edge semiconductors, demand is declining. It is expected that the balance between supply and demand will not be achieved until after the fall of 2023. However, semiconductors in areas such as pure electric vehicles (EV) for demand growth remain in short supply, and supply constraints continue.

Oversupply of semiconductors resolved after autumn 2023

The oversupply of semiconductors is long-lasting. In addition to consumer-facing electronics such as smartphones and personal computers, data center investment by IT giants is also decelerating. Centering on cutting-edge semiconductors, demand is declining. It is expected that the balance between supply and demand will not be achieved until after the fall of 2023. However, semiconductors in areas such as pure electric vehicles (EV) for demand growth remain in short supply, and supply constraints continue.

"We are experiencing the most serious imbalance between supply and demand in the past 13 years," Sanjoy Morotya, CEO of Micron Technology, said at the financial report conference on December 21, 2022. The oversupply has also led to a decline in sales prices. From September to November 2022, Micron Technology's operating income will decrease by 47% compared with the same period of the previous year.

Due to impacts such as a sharp drop in demand for smartphones, memory used for data storage, etc. will quickly turn into an oversupply from the second half of 2022. Regarding how long it will take to restore the balance between supply and demand, Nihon Keizai Shimbun (Chinese version: Nikkei Chinese Network) consulted experts such as professional trading houses, research companies and analysts. Respondents were commissioned to evaluate on five levels ranging from oversupply to shortage, and a heat map was drawn based on a total of 10 responses.

Semiconductors for smartphones and personal computers will become oversupplied by July to September 2022. Despite the gradual progress in the suppression of semiconductor supply and inventory digestion, the restoration of supply and demand balance for semiconductors for smartphones is expected to wait until October to December 2023, and for semiconductors for personal computers until July to September 2023. Affected by the slowdown in advertising revenue, Chinese and American IT giants are reducing investment, and the demand for semiconductors for data centers is slowing down. It is expected to tend to oversupply before January to March 2023.

It takes months to manufacture semiconductors, and what affects supply now is production in mid-2022. In addition to adjusting supply by increasing their own inventory, Micron Technology and KIOXIA Corporation have initiated large-scale production cuts since October, but the reduction in supply has not kept up with the decline in demand.

 

Not only memory, but semiconductor inventories owned by supply chains are swelling. The survey conducted by the Japan Semiconductor Business Association (located in Shibuya, Tokyo) in December showed that the business climate judgment index (DI) of "excess" minus "insufficient" inventory was +64, which was more biased towards excess than the September survey. 38 percent . Inventory levels are also high at companies that use semiconductors to make end products. TSMC CEO Wei Zhejia said at the end of October that customers' destocking may continue until the first half of 2023.

In contrast, semiconductors for automotive and industrial are still in short supply. Although the number of parts obtained with shorter delivery times has increased, the semiconductor trading company CoreStaff said, "As long as one of the semiconductor and electronic parts cannot be purchased, it cannot be produced, and other parts can only be turned into inventory." It is still difficult to procure sufficient quantities, centering on semiconductor components using old production technologies. Especially automotive semiconductors are expected to remain in short supply until 2023. In addition to automakers pulling back production, increased use of semiconductors per vehicle is also driving up demand. The amount of semiconductor used in gasoline vehicles is about US$500 per vehicle, while that of pure electric vehicles (EV) reaches about US$1,600.

In the context of increasing demand for automotive semiconductors, power semiconductors used for current control and analog semiconductors used for power management, etc. "have less investment in equipment, and it may be difficult to increase the supply quickly" (major trading company Macnica Holdings). Both will remain in short supply through 2023. According to data compiled by US semiconductor trader Source Engine, the delivery time of power semiconductors has been extended from 31 to 51 weeks at the end of May to 39 to 64 weeks in November.

Affected by the shortage of semiconductors, Toyota and Honda's production in December will be lower than previously planned. At the same time, in January 2023, some factories such as domestic factories in Japan will adjust their operating rates. Limited semiconductor production has become a bottleneck, and Yuichi Koshiba of Boston Consulting Group (BCG) said that "the downward pressure on auto production will continue". A voice among the auto giants stated that "it will take until 2024 for the supply of parts to return to normal."

If the signs of a slowdown in the world economy strengthen, the time required to digest inventories will also be extended, and the risk of further strengthening the headwinds facing the semiconductor market is emerging. The world's semiconductor manufacturers are expanding production capacity one after another, and the time to restore the balance between supply and demand may be delayed.

Thanks to the support of the governments of various countries and regions, in 2024 in the United States, new factories of Intel and TSMC will be put into operation. Micron Technology and others have also announced large-scale investment plans. While investments betting on long-term demand growth are integral, capacity will be added rapidly. If production capacity increases faster than demand recovery, there may be a further oversupply centered on cutting-edge products.