Posted on Oct 14th, 2022

Semiconductor availability in 2022 has been dire. Delving into the historical data reveals it is both predictable and short-term, but will it change the nature of global supply and demand?

The supply-chain crunch of the past year quickly became so bad that some firms even bought other companies’ appliances to strip them for the specialised semiconductor components they contained. It was a situation the industry had not experienced in a quarter of a century.

The years of sluggish economic growth since the 2008 crisis lured many into the false sense of security that the chipmaking sector could pretty much make whatever customers wanted. But, on the way out of the sudden Covid-lockdown slump, buyers were surprised that the industry was not in a position to fill gaps in their inventories. For long-term observers of the market, the supply crunch was not unprecedented but the resumption of normal behaviour.

“Semiconductors was, is and will be a cyclical industry. At the same time, the industry is kind of bad at predicting things,” Charles Shi, senior analyst at financier Needham & Company, explained at the Design Automation Conference in July.

By that point, Shi was looking at a situation where supply does not just catch up with demand but overtakes it. And it would likely come at a point where fab capacity built by TSMC, Intel and other large companies finally comes onstream and adds even more supply to what exists, creating the potential for a glut. The clues came just a month earlier.

Bill McClean, president of IC Insights, points out that the sales trajectory for the second half of this year looks as though “someone flipped a switch to the off position for the memory market, beginning in June”.

Change has spread across the industry since, according to Malcolm Penn, president of analyst firm Future Horizons. Using figures from the World Semiconductor Trade Statistics group, he argued at the start of August: “The 17th market downturn has now well and truly started.”

Penn pointed to projections from GlobalFoundries, number-four foundry worldwide. The company warned it expects to see its capacity utilisation – the degree to which its equipment is being used for orders and not left idle – fall in the second half of the year, not least because many suppliers have been frantically putting in new production lines to cope with the demand spike of 2021. It is a similar pattern at Samsung, though the leading foundry TSMC is currently reporting a stronger order book. However, the Taiwanese supplier has a higher proportion of leading-edge production than its competitors and those lines rarely run far below capacity even during major slumps.

“Reduced unit shipments will quickly translate into a sharp cutback in new orders, taking the pressure off fab capacity and eventually shorter lead times, just as the first wave of increased capacity is coming online,” Penn notes.

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