Chip industry, wintering en masse

As you can see, since the second half of last year, the economic downturn has been transmitted to the chip sector, resulting in a sharp turnaround in demand. Coupled with the impact of geopolitical and other factors, the downward spiral of global semiconductors has accelerated. On the one hand, the performance of chip companies has plummeted and fabs have all adjusted their investments; on the other hand, in order to save expenses, global technology companies, including semiconductor companies, have opened a new wave of layoffs.

Especially in China, for various well-known reasons, this uneasiness has started to spread among the investment circle and chip startups, and even chip engineers are feeling the "chill".

The key word for the entire semiconductor industry is "survive". Everyone is combining their efforts to survive this "winter".

Chill spreads across semiconductors
The chill is evident in the earnings reports of almost all semiconductor companies and their forecasts for the future.

According to the Semiconductor Industry Association (SIA), global semiconductor industry sales totalled US$41.3 billion in January 2023, down 5.2% from US$43.6 billion in December 2022 and down 18.5% from total sales of US$50.7 billion in January 2022. In particular, sales in mainland China, the global hub for electronic equipment manufacturing, fell by a staggering 31.6% year-on-year.

WSWT statistics show that the downturn that began at the end of last year continued to spread in the first quarter of this year. As the chart below shows, the top 15 semiconductor suppliers saw their revenues fall by 14% in the fourth quarter of 2022 compared to the third quarter of 2022. The largest declines were among memory companies, down 25 per cent, and non-memory companies, down 9 per cent. Of the 15 companies, only four (Nvidia, AMD, STMicroelectronics and Analog Devices) saw slight revenue growth, ranging from 0.1% to 2.4%.



The outlook for the top companies is generally gloomy for the first quarter of 2023. The semiconductor industry typically weakens in the first quarter of the year, but most companies expect a weaker than normal first quarter in 2023. The nine non-memory companies that provided revenue guidance for the first quarter of 2023 are all expected to decline, with a weighted average decline of 10 percent. Of these, Intel is the most pessimistic, with a 22% decline in guidance.

This shows that the slump on the sales side is becoming the biggest sticking point. When it comes to devices, the statistics are not so good either. Take mainland China, for example, which has had the most purchasing power in recent years.

The statistics from the public number "Semiconductor General Research" also show that in the latest March, the import value of semiconductor front-end manufacturing equipment in mainland China was US$3,919.5 million, down 28.8% compared to the same period last year. Except for the increase in the import amount of other deposition equipment, the import amount of the rest of the equipment also decreased by different proportions; specifically for heat treatment equipment, the total import amount from October to December was US$337.8 million, down 22.9% year-on-year and 24.8% YoY; the import amount of CVD equipment decreased 22.3% year-on-year; the import amount of PVD equipment for the same period was US$205.9 million, down 43.8% YoY. The total import value of dry etching equipment for the same period was US$719.3 million, down 26.1% year-on-year and 34.1% quarter-on-quarter.

Semiconductor Industry International Association (SEMI) in December last year released the global semiconductor equipment market forecast data for 2022 also shows that although equipment sales in 2022 to a new high, but 2023 is expected to shrink by 16% to $ 91.2 billion, to resume growth in 2024.

Under the influence of sluggish demand, high inventory is also becoming a big problem for the industry.

South Korean media recently pointed out that in the first two months of this year, Samsung Electronics' memory chip business lost as much as US$2.3 billion, which is the first loss for the South Korean giant in fifteen years, and this loss is also alarming. South Korean officials even said in an earlier statement that South Korea's chip inventory had increased by 28% from a month ago. It was the biggest increase since February 1996. Inventories are even up 39.5 per cent compared to a year ago;

The reason why Korean chips are in such a miserable state has much to do with the high dive in memory chips. According to the latest data from TrendForce, the average selling price of DRAM for mobile phones and PCs plummeted by 34.4% last quarter, compared to the 31.4% drop in Q3 last year, which was worse rather than better. As for NAND, a key product for data centre and enterprise customers, its performance was only slightly better than that of DRAM.

In addition to storage, MCU, power management chips, CIS, mobile phone chips and OLED driver chips are also facing inventory problems.

Under the attack of various factors, companies are trying their best to survive.

Companies struggle to "survive"
For semiconductor companies, survival has become their goal. Layoffs have become their first option. According to incomplete statistics from Semiconductor Industry Insight, semiconductor companies including Intel, Micron, Qualcomm, Synopsys, Arm, Lattice and Lam research have all announced layoffs. The wind is rumoured to have blown into the country as well.

In addition to layoffs, chip companies are reducing expenses in a variety of ways.

First of all, look at the foundry side, "price reduction" to pull customers to become another option to tide them over the winter. Taiwan media reports recently also pointed out that the wafer foundry mature process killing storm expanded, the industry rumors, due to the capacity utilization rate to pull up the situation is not as expected, UMC, Force Semiconductor, the world advanced and other foundries offer "as long as to cast a chip, the price can be negotiated" strategy, if customers are willing to place more orders, price discounts of up to one to two percent, more than The previous price reduction is even greater.

Taiwan media further pointed out that, previously, the world's second largest foundry in South Korea Samsung due to the downturn in market conditions, rumored to cut the mature process offer 10% to grab a single, now Taiwan factory to fill the capacity, the price cut is even greater, meaning that the semiconductor into the inventory adjustment period, resulting in the foundry mature process into a buyer's market trend continues and continues to deteriorate.

In addition to price cuts, cutting capital expenditure has also become another board axe for foundry spending in response to the market downturn.

TSMC, the foundry giant, said at the beginning of this year that the company's capital expenditure this year will decline from last year's record high of US$36.3 billion, estimated at US$32 billion to US$36 billion, slightly below market expectations; and according to the Korea Economic Daily, the Korean technology giant Samsung Electronics, which originally intended to maintain high-grade capital expenditure, is also rumoured to be cutting back on foundry investment, highlighting the downturn in chip demand. Citigroup Global Markets has said outright that as inventory prices fall, Samsung is increasingly likely to adjust its wafer supply strategy by cutting investment; UMC has revised its capital expenditure this year from US$3.6 billion to US$3.0, a drop of 16.7%; World Advanced estimates that the company's capital expenditure will fall to NT$10 billion in 2023, an annual reduction of more than 48%.

In terms of chip companies, in addition to price cuts, inventory has become another of their "survival" skills.

Take MCU as an example, according to my understanding, now consumer electronics MCU has a very high inventory. A number of domestic MCU practitioners have revealed to me that everyone is now grovelling into the game to accelerate the de-stocking. News from the Taiwanese media was even more blunt earlier, with Taiwanese MCU manufacturer Holtek confirming that it is targeting distributors for a comprehensive MCU price cut from February onwards. The industry believes that with the storm of price cuts, many MCU factories will also be under pressure; as for OLED driver chips, some insiders told me that because of inventory reasons, the price of these chips has been falling all the way down, and has nearly fallen below the cost price; storage chips to inventory pressure more needless to say.

In addition to the chip company, the end customer "to inventory" has also become another factor affecting the market trend. As we all know, in the past three years, the epidemic has affected the supply chain, allowing many end-users to "stock up" to deal with this uncertainty. In the case of sluggish market demand, terminal manufacturers will no longer place orders with chip companies. Analog chip maker Texas Instruments famously said when it released its Q4 results earlier this year that customer order cancellations increased in Q4 last year. This is mainly because customers tend to reduce inventory. They expect a weaker decline in demand this quarter than a decline in seasonal demand.

"Customers are doing what they would have done for decades and will continue to do, they are building up their inventories a bit too much. We'll see how long that takes to resolve." Texas Instruments CFO said in a press interview.

Although everyone is actively de-stocking, according to Taiwan's regional economic daily newspaper, a source familiar with the matter explained that the current de-stocking is still slower than originally estimated, for example, the original estimated rate of inventory de-stocking was to bring in 0.5 months of goods to match the sale of 1 month of goods, which would gradually reduce 0.5 months of inventory; however, the actual situation now is to bring in 0.6 of goods.

This has undoubtedly put new pressure on the de-stocking of chips.

The above survival approach is for chip companies with products. But as you can see, there have been many chip start-ups springing up around the world in the past few years, especially in China. For them, it is fundamental how they can live within their means in this current environment. This is seen in two main dimensions: how do some chip companies that already have products pitch, ship and finance their survival in this environment? How can companies without products control their own team size expansion? How do you finance your survival?

The engineer's bunker
Engineers are undoubtedly another group that has been hit in this wave of semiconductor downfall.

Over the past few years, the whole chip business rush has gone into a frenzy because of the flurry of chip start-ups and, it seems, the capital markets, a state of affairs that Semiconductor Industry Insight recounted in a previous article, "Shortage of people, we're switching plates in the front office". Statistics from Hudson, a talent solutions company, also show that chip is the industry with the highest job-hopping salary increases in 2022, with an average increase of over 50%.

However, heading into 2023, things seem to be returning to normal after a double whammy of capital market wait-and-see and a slump in the end market. First of all, it should be stressed that the normal we are talking about does not mean that the wages of chip engineers have fallen, but rather that the phenomenon of chip talents jumping jobs frequently, even the kind of cross-sector phenomenon before, has started to decrease.

The reason for this status quo, which is, first of all, of course, related to the demand for corporate talent. Foreign chip companies need not say much, the freeze on recruitment and layoffs of companies have reported a lot. Coming to the domestic chip companies, according to the author was informed that a number of chip companies have frozen recruitment, some companies have even appeared only out of the regulations, its main purpose is of course to tighten the belt for the winter.

From some previous reports, we have also seen that some chip engineers by virtue of frequent job-hopping, their salaries upwards, and this is not an isolated case. But in the current environment, these phenomena are not uncommon. Some engineers in the author's communication also confessed that, in this market, to keep their jobs, safe and sound through the winter is the priority.

However, even in the current recessionary environment, HR said that it is difficult to find quality engineers in the market, which also shows from the side that a chip engineer who has excellent strength need not worry at any time. Moreover, this current situation also confirms the previous view that personnel are jumping cautiously on the one hand; on the other hand, it also reflects the determination of chip companies to retain important living forces for the next wave of recovery.

As Malcolm Penn said in his analysis article, semiconductors will inevitably decline by 22% this year. However, we do not need to panic or despair. Past history shows that semiconductors are such a cyclical industry and that every time they "crash" it is actually a good time to gain market share. For this reason Malcolm Penn suggests that now is the time to roll up our sleeves and do whatever is necessary to survive in the short term, but he advises us not to compromise the long term.

"Any action taken now needs to be done with the inevitable 2024 upturn clearly and firmly in mind. This is not a time for panic, but a time for decisive action, cool heads and first mover advantage. It is time to prepare for the inevitable 17th industry recovery that is coming." Malcolm Penn said.