Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Tuesday, November 29, 2022

Global chip market outlook for 2023 gloomy

Gartner assured that the industry will lose sales of almost US$ 30 billion compared to this year. There are two factors at play: oversupply and its flip side, sluggish demand, and a global economy affected by inflation, rising interest rates and an incipient recession. TSMC will reduce its capital expenditure by 10% in 2022.

The consulting firm Gartner has drastically changed its forecast for the global semiconductor industry's revenue growth for 2023. Last July, it went from predicting a very slight growth of less than 1% compared to 2022, to forecasting a drop of 3.6%.

In dollar terms, Gartner predicted that this year will close with sales of US$ 618 billion, which would represent a 4% jump compared to 2021's turnover, but barely above the global inflation forecast for 2022. In the middle of this year it considered that in 2023 that level would rise very little, to US$ 623 billion. Now, however, Gartner said that sales will fall to US$ 596 billion, i.e. there will be a net loss that will be aggravated by high inflation rates in the world's main economies.

According to the consultancy firm, there are two causes for this behavior: "oversupply" and the "worsening" of the global economic situation. And it affects the whole range of semiconductors, especially memory semiconductors, whose sales could fall by up to 16% next year, it said.

Gartner's warnings are not isolated. The same perception is already sweeping the industry. Last September, Micron Technology stressed that the times ahead are even more difficult than those it pointed out earlier this year and that it was "cutting back on its investments" as a result.

Oversupply or reduced demand. The pandemic took the chip industry by surprise. The substantial increase in demand for connectivity due to the confinements resulted in a commensurate growth in semiconductor orders by device and telecom equipment manufacturers. Chipmakers juggled to meet this demand, including substantial inventory reductions. According to SEMI, the global alliance grouping major chip producers, inventories fell by 50% throughout 2021.

The lack of chips led to shortages in a number of products, from the simplest devices to the most sophisticated supercomputers, including cars, household appliances and capital goods. The shortages contributed to the breakdown of global supply chains.

The response was a cascade of investment announcements, the most significant of which were government-driven. Semiconductors were thrust headlong into geopolitics. The private sector jumped on top of these plans, which, as a rule, include subsidies for research, development and chip production.

As these announcements begin to materialize (a new fab takes about five years to ramp up), 2022 was different from the previous year. Russia's war in Ukraine further fueled a long-standing global inflationary process and changed people's consumption patterns. Micron, for example, said in February that they expect a drop in demand for PCs and smartphones and would therefore reduce their own investments.

In Gartner's view, the weakness on the consumer side is largely due to the decline in disposable income caused by rising inflation and interest rates. This results in people having less disposable income to spend.

Sales data from Thanksgiving Day, Black Friday and Cyber Monday (Thursday and Friday of last week and yesterday) indicate that consumers took advantage of the offers and especially the installment proposals. According to Adobe, online sales totaled US$ 26.5 billion, a record, and 78% of them were in fixed installments, a financial tool that is highly valued in times of high inflation.

According to the latest known data from the Semiconductor Industry Association (SIA), global chip sales in September 2022 fell 0.5% compared to August 2022 and were 3% lower than a year ago. "Global semiconductor sales totaled US$141 billion during the third quarter of 2022, down 3% compared to the third quarter of 2021 and 6.3% lower than the second quarter of 2022," SIA said in a statement.

SIA felt that "After strong growth during the first half of 2022, global semiconductor sales have slowed in recent months, declining in September year over year for the first time since January 2020, amid a variety of macroeconomic headwinds," said SIA president and CEO John Neuffer.

In addition to Micron, other global players have warned of slowing demand. TSMC, the leading global chip producer and manufacturer for other vendors, based in Taiwan, has already warned of the prospect of decline in 2023 and that its capital spending will be 10% lower in 2022 than planned at mid-year as a result.

AMD, Intel and Nvidia reduced their revenue forecasts. In all three cases they pointed to significant weakening in the PC and device market. Investment bank JPMorgan Chase said in a report in early September that AMD, Nvidia, Qualcomm and MediaTek slashed chip orders with TSMC.

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