After impacting the market with product scarcity this past year, owing to various reasons including US-China trade war, COVID-19 and drought, the semiconductor industry continues its roller coaster ride with orders currently exceeding supply lines.
Almost all electronic devices and applications used for digitization are driven by semiconductors. In 2021, the drive toward digitization pushed the sales of semiconductors to $555.9 billion, up 26.2%, with sales in China reaching $192.5 billion, as per the Semiconductor Industry Association (SIA). A record 1.15 trillion semiconductor units were shipped during the period. Given the growth in technology trends propelled by AI, ML and cloud computing, the semiconductor industry is projected to reach $726.73 billion by 2027, SIA notes.
Conversely, in 2022, chip sales growth has slowed. SIA reported a drop in worldwide sales on a month-to-month basis; industry sales were $49.0 billion in July 2022, up 7.3% over the July 2021 total of $45.7 billion but a 2.3% drop compared to the June 2022 total of $50.2 billion. Including the Americas, year-to-year sales were up in Europe (15.2%) and Japan (13.1%), and the Asia Pacific/others (4.1%), but down in China (-1.8%). Meanwhile, month-to-month sales increased in Europe (2.7%) and Japan (0.6%) but decreased in the Americas (-2.3%), China (-3.5%) and Asia Pacific/All Other (-3.5%), as per SIA.
Why the Sudden Dip in Sales?
The primary reason for the demand-supply volatility can be attributed to last year’s virus pandemic that dynamically disrupted demand due to factory closures and labor shortages along with natural calamities affecting production. However, after the lifting of COVID-19 restrictions, there was a sudden spike in chip demand – what economists refer to as the V-shape economic recovery globally. As such, supply chains have struggled to keep up with the demand, causing chip shortages, extended delivery times from analog suppliers and substantial price increases. The latter can be attributed to the recession environment in the US and Europe due to the Russia-Ukraine war and renewed COVID-19 restrictions in China. The risk factor is being felt across the semiconductor supply chain.
The constraints are mainly occurring in the production of wafer – a thin slice of semiconductor used for the fabrication of integrated circuits. Even the world's largest chip maker, TSMC, which controls 28% of global semiconductor manufacturing capacity, is experiencing ongoing shortages. The biggest manufacturers, including Texas Instruments, Intel and TSMC, are investing heavily in building new manufacturing facilities (popularly called fabs in the industry), though these new facilities aren’t expected to be production-ready until 2023 at the earliest. In a similar vein, the US recently passed the CHIPS and Science Act of 2022, which will see investments of nearly $250 billion placed into semiconductor and scientific research and development (R&D). With such a move, the US intends to again jump back on top of the chip-making game as well as tackle the necessary supply chain issues.
China, a leading chip-producing country, has voiced unease with the US chip production bill, however, saying that it has created a “hostile” environment for the country’s semiconductor export business. Moreover, the China Semiconductor Industry Association (CSIA), the state-run body with 744 members, reportedly organized a meeting where over 300 representatives from chip production companies took part, which is being seen as a tell-tale sign of an industry in distress. Chinese experts have reportedly warned chip companies to prepare for more turbulence to come.
How Will This Impact the ICT Sector?
Since the chip is at the heart of everything electronic, it is easy to presume that this disruption impact will be felt across the ICT sector in more ways than one. The price of affected devices could soar exorbitantly as there would be fewer goods being delivered. As per Gartner, semiconductor revenue from PCs is estimated to post 5.4% decline in 2022, as shipments are likely to decrease 13.1% as compared to growth in 2020 and 2021. Gartner also estimates that revenue from smartphones could also see a drop of 3.1% this year, compared to a 24.5% surge in 2021. And given the looming global recession, the ICT market will have to look for possible ways to stay afloat until the chips start to come back online again.
There is, however, a silver lining to all this. As global chip supply chains struggle to keep up with demand and as export policies tighten, an opportunity for more local suppliers to meet market demands may be in the offing. Earlier this year, for example, Tokyo-based Yokogawa Electric Corp. and oil giant Aramco signed an initial agreement to seed and localize semiconductor chip manufacturing in Saudi Arabia. Similarly, the UAE is meticulously planning its moves to become a leading global digital hub, with massive infrastructure already put in place. The UAE has already made its entry into the semiconductor space by becoming the primary investor in the US-based manufacturer GlobalFoundries (GF). By investing in the most capital-intensive industries globally, the UAE plans to make its mark as a truly global tech leader in line with its Economic Vision 2030.
Given the continued digitization and automation trend globally, optimistic market findings estimate the global semiconductor sector to increase by 13.9% in 2022 and by 4.6% in 2023. Could we see more collaboration in the chip manufacturing sector begin to crop up eventually as a result? Let's wait and see.
Also read: Qualcomm, global semiconductor maker to develop premium 5G solutions
