Author: Guo Ziwen
Since the beginning of this year, there have been numerous discussions about the “coming winter” of the semiconductor market. From weak terminal demand to high inventory levels, and then to layoffs and hiring freezes, various organizations and chip manufacturers have been sending signals of market recession, issuing warnings to the semiconductor supply chain. On one hand, Intel has just announced a slowdown in hiring to cut costs, while on the other hand, Texas Instruments (TI) is facing price pressure on analog chips.
According to reports, supply chain sources indicate that Texas Instruments, a global leader in analog ICs, has notified customers that the supply-demand imbalance will ease in the second half of the year, marking the end of the price increase cycle for power management chips and other analog ICs. Media reports cite industry insiders stating that some analog chip prices from Texas Instruments have plummeted, with declines exceeding 80%.
Over the past two years, the global supply-demand imbalance has led to chip prices soaring by dozens or even hundreds of times. As consumer demand for electronic products gradually declines, downstream market demand has significantly weakened, and inventory levels have generally risen, it is expected that the semiconductor market will also enter a price decline cycle.
Not just analog chips, the semiconductor market is entering a price decline cycle
With sales of $14.1 billion, Texas Instruments maintained its position as the global leader in the analog IC market in 2021, holding a market share of 19%. Long regarded as one of the top ten global companies, the dynamics of Texas Instruments are closely watched and will undoubtedly serve as a barometer for other chip manufacturers. Therefore, the price fluctuations of Texas Instruments in the spot market have sparked intense discussions within the industry, also releasing a dangerous signal of a cooling semiconductor market.
In the analog chip sector, IC Insights predicted a 4% increase in the average selling price (ASP) of analog chips in 2021, marking the first price increase trend in 17 years. This is part of the overall trend in the chip market, where price increases became the norm in 2021. Due to tight chip supply, prices for upstream materials and wafer foundries were announced to rise, leading to a series of chain reactions that resulted in continuous price increases in the downstream chip market. Major international companies such as Texas Instruments, ADI, Qualcomm, and Renesas have announced price adjustments, with increases ranging from 6% to 21%.
However, just six months after the price increase wave, the semiconductor market is filled with pessimistic sentiment, and the overall market situation has taken a sharp downturn. In fact, not only are analog chip prices falling, but prices for panel driver ICs, MCUs, GPUs, DRAM, NAND Flash, NOR Flash, and even passive components like MLCCs and resistors are also under continuous pressure.
For example, in the case of driver ICs, demand for panels has weakened across the board, leading to a gradual decline in driver IC prices, with a decrease of about 10% to 15% in the second quarter of this year, and a further expected decline of over 20% in the third quarter. As for memory chips, whether DRAM, NAND Flash, or NOR Flash, the price trend is showing an overall downward trend, with declines maintaining around 6% to 10%.
Is overcapacity approaching? The chip market is entering an inventory correction period
Looking back at the fluctuations in the chip market in recent years, it is evident that various black swan events have caused the semiconductor market to develop beyond normal conditions. As the pandemic eases, the benefits of remote work are gradually fading, and terminal market demand is also declining, leading to generally higher inventory levels in the chip supply chain.
According to a report from Jefferies Group, it is expected that the semiconductor industry will enter a large-scale inventory correction period in the second half of 2022 or early 2023. The report indicates that the average inventory turnover days for manufacturers such as Dell, HP, and Lenovo have increased from 52.7 days in December last year to 62.1 days in March this year, and it is estimated that it will further rise to over 70 days in the fourth quarter. Additionally, CINNO Research data shows that in the first quarter of 2022, the average inventory turnover days for analog IC design manufacturers also increased to 135 days.
On the other hand, since 2020, due to the severe chip shortage and strong downstream demand, major global wafer foundries and IDM manufacturers have significantly increased capital expenditures to expand production capacity. According to SEMI (Semiconductor Equipment and Materials International), it is projected that from 2020 to 2024, 60 new or expanded 12-inch wafer fabs will be built globally, along with 25 new 8-inch wafer fabs entering production during the same period.
For new production capacity, it generally takes 2 to 3 years from construction to production. This year, wafer fabs that began construction in 2020 will gradually come online and start mass production. As large-scale capacity is released, the issue of capacity tightness will gradually ease. However, given the current sluggish market demand, it is expected that overcapacity will also arrive ahead of schedule.
Conclusion
As a cyclical industry, the semiconductor market is always demand-driven. An increase in demand leads to expanded production capacity, followed by overcapacity prompting companies to reduce prices to clear inventory, and when demand recovers, a new round of expansion begins. In light of the weak market demand and large-scale capacity release, it is normal for some chip prices to decline.
With continuous capacity release, it is expected that the supply-demand relationship in the semiconductor market will gradually shift from being supply-constrained to balanced, or even to oversupply. In this trend, the decline in chip prices also indicates that the semiconductor industry is approaching the critical point of overcapacity.
