Sourceability Insights: November 2022 Market Update

Global recession concerns, automotive production cuts, and billions lost in the semiconductor market, oh my! Semiconductor market updates gave us a scream last month and 2023 might just be scarier than Dracula and Frankenstein combined.?

Semiconductor manufacturers are building out fabrication plants and foundries while losing billions. Chip production has been identified as an important piece of a country’s backbone. Semiconductors are a necessary piece of any technology’s foundation, to lose that access would be devastating.??

Even with softening demand for consumer electronics and the impact it's had on chip production, countries continue to increase programs to lure semiconductor talent to their shores.?

As we analyze the market’s changes, strategizing for the possible shortage-turned-glut is necessary now more than ever.??

Semiconductor Giants Pledging to Fab Construction Across the World

From Hiroshima, Japan to Clay, New York, new chip fabs are being built up everywhere. After several years of a headache-inducing chip crunch, a lot of countries have realized the importance access to electronic components is. This realization came in the form of government subsidy programs and incentives from New Delhi to Sicily.??

The cost of which are in the billions.??

Micron Technology will spend upwards of $100 billion in the next 20 years for their large factory in New York. Texas Instruments is breaking ground for a new 300-mm wafer plant in Richardson, Texas. TSMC has selected Arizona for its new U.S.- based plant as Intel starts construction in Ohio.??

Outside of the U.S., STMicroelectronics is spending upwards of $730 million for a silicon carbide wafer plant in Italy. Micron Technology and Kioxia are expanding production in Hiroshima as TSMC partners with Sony for a $7 billion investment for a manufacturing plant. Many of these plans have been made to take advantage of the offered incentives and subsidy programs.?

The U.S. has passed the Chips and Science Act recently for $52 billion in incentives and subsidies for semiconductor manufacturing plants. Japan is subsidizing half of the $7 billion TSMC and Sony are spending and giving $320 million to Micron. In Brussels, their Chips Act will devote $30 billion euros over the next 30 years with an additional $15 billion.??

With chips continuing to be of economic and national security importance, we will likely see more of these programs across the world in the coming years. Additionally, on top of these new production plants, billions are being poured into research and development of smaller and better chips.?

Automotive and Industrial Components Shortage Will Persist

Even with drops in demand, the automotive and industrial sectors will continue to be haunted by chip constraints throughout 2023. Specifically, in the form of automotive micontroller units (MCUs), power insulated-gate bipolar transistors (IGBT), and automotive ICs.?

Automotive intelligent driver model (IDM) manufacturers from America, Europe, and Japan are trying to negotiate with Taiwanese wafer foundries on their prices. These prices are expected to increase in 2023 to cope with rising material and shipping costs to prevent profit margin loss. These prices are expected to rise as inflation takes its toll.?

Many automotive manufacturers, including Stellantis and Volkswagen, see the chip shortage lasting throughout 2023. Production cuts happened throughout late September and early October by Toyota, Honda, and others. Automotives, in contrast to consumer electronics, are still in relatively high demand despite the production cuts.

Indian automaker, Tata Motors, reported production at 90% in early October. Maruti Suzuki, another Indian automaker, was at 96% capacity from “unprecedented demand” for vehicles. Production cuts Toyota, Honda, and others are doing are because of the lack of chips. They are hopeful that with consumer electronic demand dropping some of these chips can be reallocated to the automotive sector.??

With new electric vehicle (EV) policies being signed into law across China, Europe, and the U.S. automotive chip inventory will continue to be a stress point. It will take some time to rebuild chip inventory for many first-tier IDM manufacturers. Charging station rollouts will continue to be a stress point that, like with the rest of the automotive industry, requires chips.??

Sourcengine’s EV-dedicated supply chain solutions aim to help ease constraint headaches as the world embraces further electrification. Especially now, as a global recession causing chip makers to cut production, might make it an even longer road.??

Demand Cooling so Chip Manufacturers are Losing

Even with the shortage persisting, for some through 2023, it comes as a surprise that semiconductor manufacturers are not just experiencing cooling demands, but slashing production.?

In response to the DRAM chip decline, South Korea cut chip production for the first time in four years. As a large exporter of DRAM and NAND memory chips, the response is a notable sign that an economic slowdown is coming.??

Japan, like South Korea, has a large market of flash memory facilities. One company, Kioxia, has decided to cut production by 30% at its memory chip facilities. Micron Technology will drop to below-demand growth in 2023, making it the lowest ever within the industry. AMD cites falling PC chip sales because its target revenue of $6.7 billion for Q3 has been lowered to $5.6 billion.??

AMD isn’t the only chipmaker posting losses. Samsung Electronics, a big manufacturer of DRAM and NAND chips, posted disappointing numbers joining the ranks of Texas Instruments, NXP Semiconductor, Microchip Technology, and others. A few companies came out better than expected, such as TSMC and Japan’s semiconductor firm Socionext, though they aren’t entirely unaffected.??

TSMC said it would be slashing its capital spending target for the next year by 10%. Intel will be cutting thousands of jobs in its sales and marketing divisions due to dropping PC sales. In total, the market value for semiconductor companies lost $240 billion globally from slowing demand and the Biden administration’s new restrictions on chip sales to China.??

The signs of a shortage-turned-glut are growing. A year ago, there wasn’t as much concern over excess inventory. With a global economic slump now entering the mix, the possibility is far more likely. For some industries the shortage will persist from constraints another year.??

For others? It’s time to start preparing for how to manage excess inventory when it eventually begins to occur.??

If you want to learn more about the trends shaping the semiconductor landscape, check out the latest edition of Sourcengine’s Lead Time Report.???

Women in Electronics

Sourceability is excited to announce our new partnership with Women in Electronics (WE) a community of progressive women leaders dedicated to expanding opportunities for women in the electronics industry. As a silver sponsor for WE, Sourceability will be able to support women across the industry and within our organization by giving them access to grow their talents, show their work, and more.??

Innovation and growth are important to Sourceability, with that comes diversity and inclusivity. We are excited to continue our commitment to hiring more female talent within our organization with a focus on senior talent and leadership. In the next 2 years, we hope to reach at least 50% of female representation in our colleagues and North America.??

We cannot wait to do further work with WE and their impressive women leaders. You can learn more about our partnership and how Sourceability plans on furthering our goals here.