As soon as half a year, semiconductor highlights will be reversed?
1.Semiconductor highlights booms and busts are the law of the past
The semiconductor market has been marked by booms and busts over the years. A long-term revenue growth chart of global semiconductors as the picture below.
The black line in the picture serves as the focus of the 0% year-on-year growth. If the red line is above the axis, the income increases, but if it is below the axis, then it contracts. Historically, boom-bust cycles have been driven primarily by supply.
The core reason for this is that the increase in capacity is very erratic. Adding new capacity through fabs comes with huge fixed costs followed by very low variable costs, especially in sub-sectors such as memory.
For cyclical industries, the expectation of a mean reversal occurs whenever there is a year of consistently strong results. There are basically no practitioners who have the courage to say “only grow, not fall”.
But now, there are clear signs that new demand from artificial intelligence, new industries and a broader slowdown in Moore’s Law is transforming the industry. In addition, the semiconductors also have a more regulated and uniform supply.
The semiconductor highlights industry continues to grow despite the frenzied capacity additions that have taken place.
Since COVID-19, semiconductors appear to have shifted from a supply-driven to a demand-driven industry. This is the key to cyclical to long-term markets. Moreover, semiconductors actually grow in recessions, which is new to the secular argument.
On the demand side, PC growth is expected to slow as the COVID-19 eases and demand for home-based work and education slows. Which will also dampen wafer foundry price increases. Moreover, as observed by the number of days in stock, Fabless inventory has continued to grow every quarter over the past year.
The number of days has risen to about 75 from a trough of about 60 a year ago. But remains below the past average of more than 80 days.
Not only that, but downstream inventories are piling up. Mainly due to the component supply mismatch, and there is no sign of any inventory correction yet. As a result, future uncertainty may increase and end demand may be weak.
In response, TSMC’s Huang said that the current domestic semiconductor industry in the face of market demand, not like to build a PC or server assembly plant, if necessary to expand the plant, it can be completed within half a year.
“It will take five years for TSMC’s Causeway factory to be planned and built. Any foundry is the same. It is not that easy to meet the market demand.”
He also believes that the global trend of electric vehicles is driving up the demand for automotive electronic chips, and that electric vehicles are the main tool for the world to move toward energy efficiency, carbon reduction and net zero emissions, which is a big profit for the wafer industry.
With the current 12-inch wafer foundry capacity shortage and the price of automotive chips with 8-inch wafer capacity continuing to rise, he dismissed the possibility of overcapacity.
3.Where does the new energy come from?
Globally important financial and market forces are creating unprecedented growth and dynamism for the semiconductor highlights. Among the transformative forces:
- Aglobal chip shortage affecting industries large and small;
- Capital interested in semiconductors is on the rise, creating record deals and offers;
- An accelerated instruction set Computing (RISC) architecture that will be used from small devices to large server systems, from device and system vendors to customers;
- Semiconductor manufacturing (foundry services) is booming due to RISC growth, which includes semiconductor, consumer or commercial electronics, and cloud platform service providers;
- Semiconductor solutions (e.g., ASics, SOCs) that specialize in workload adjustment will capture a share of the growth in general-purpose processors.
The next few years will see unusually strong competitive activity between incumbents and start-ups. As well as between suppliers and their RISC customers.The proliferation of solutions that will benefit customers and the providers. That can serve them suggests that the overall forecast for the industry in the coming years is positive.
Will supply shortages become oversupply? No doubt, this long-cycle sector has more or less had to do so during every big blip in the economic cycle.