The semiconductor industry is heading for its next downturn, Malcolm Penn, CEO of Future Horizons, warned in his annual forecast for the sector, delivered online during IFS2022.

“It is simply a question of when: the fourth quarter of this year or the first quarter of 2023,” predicted Penn, a highly respected analyst who has tracked semiconductor industry trends for many years.

“There are no soft landings,” he warned.

Penn posited that the global semiconductor market would grow roughly by 10% this year. That would represent better performance than the 8.8% recently forecast by World Semiconductor Trade Statistics (WSTS) but and come in just under the performance forecast by another analyst group, IC Insights (10.8%).

“All the signs of a recession are there. The market is overheating, and the road ahead is stony,” said Penn.

As evidence, the analyst noted that the capital expenditures announced by leading fab operators in Asia, the U.S., and Europe during the past six months are running at some 75% above the long-term average when measured as a percentage of sales.

“Such ‘on-shoring’ of production is the biggest post-crash recovery risk,” Penn said.

He added that “double ordering” is rife and that shipments are running way above the 8% trend. This activity will likely result in global overcapacity as demand settles back — and when users start burning off inventory, orders will dry up and the currently healthy ASPs will inevitably come down, he warned.

“When the bubble bursts, unit shipments plummet first, followed by a collapse in the average selling prices,” Penn noted. “So don’t be surprised if the market goes negative — it more often does than not.

“Enjoy it while it lasts, because the long-term IC ASP growth rate is zero,” he added. And when collapse does arrive, it will be “sudden and sharp.”

Penn disagrees with those in the industry who argue that the situation is “different this time.” Those who hold this view see only the 26% growth the sector enjoyed in 2021, he said. That growth brought the value of sales to just over US$553 billion last year, and the annual growth projected for 2022 would push the semiconductor market to US$608.9 billion.

But Penn argues that the 26% improvement in 2021 was not a big deal when viewed in historical terms.

What could be the 17th chip market downturn will not be fueled by specific market drivers such as 5G, AI, or other “sexy stuff,” he said, noting that the semiconductor sector has always responded to such trends. The market “is driven by cyclicality, which in turn is driven by the mismatch between supply and demand. Demand is short term and turns on a dime. Supply, however, is very slow to change and can take 18 months to two years to do so.”

During his presentation, Penn paid complements to the leading global foundry, Taiwan Semiconductor Manufacturing Co., saying that TSMC remains committed to Taiwan and that the manufacturing capacity it is building up in other regions will largely be behind the leading edge when it comes on stream.

Further, unlike others who are planning to enter the business or are building new capacity, TSMC has ceased building speculative capacity, said Penn. Instead, it is largely building to pre-assigned demand.

For example, he said, the company is building two 3-nm fabs in its home territory: “one for Intel, the other for Apple.”

One key takeaway offered by Penn was that it was time for the industry to rethink the supply chain.

By: DocMemory
Copyright © 2023 CST, Inc. All Rights Reserved