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Chip glut to last most of 2023 while automotive crunch persists

Written by Nikkei Asia Published on   4 mins read

Inventory of memory, other semiconductors have swelled amid tech slump.

The semiconductor surplus that emerged in the second half of last year is not expected to ease until at least autumn, according to industry analysts, although a shortage impacting the automotive industry will likely remain throughout the year.

The supply glut in memory chips is especially pronounced for smartphones due to a drop in demand for the devices.

“The industry is experiencing the most severe imbalance between supply and demand in both DRAM and NAND [memory chips] in the last 13 years,” Micron Technology Sanjay Mehrotra said in an earnings call last month. The company reported a 47% drop in revenue in the September-November quarter compared with a year earlier.

For smartphones, the chip oversupply is not expected to alleviate until the fourth quarter of this year, according to an average estimate based on a Nikkei survey of analyst findings. For personal computers, the supply glut is expected to peak in the third quarter, then ease going forward.

Meanwhile, the oversupply of semiconductors for data centers will likely last through the first quarter of this year, according to the analysts. US and Chinese tech giants are holding back on investments due to weaker advertising revenue, and the impact is spilling over to demand for data center chips.

Nikkei tabulated analyst findings from 10 sources, including research and trading companies. Respondents were asked to rate the level of oversupply and undersupply on a five-point scale.

Considering semiconductors take months to manufacture, the current supplies are highly influenced by production volumes from the middle of 2022. Micron, along with Japanese chipmaker Kioxia Holdings and other suppliers, is focusing on correcting inventories, with the producers having significantly cut output from October.

But those efforts have not kept up with the drop in demand. Inventory of memory and other semiconductors has swelled in the supply chain.

In a December survey conducted by the Distributors Association of Semiconductors & Components in Japan, the percentage of members reporting a glut exceeded those with a shortage by 64 points.

This represents a 38-point increase from a survey conducted by the association in September. Inventories at companies that make finished products from semiconductors are also hovering at elevated levels.

Taiwan Semiconductor Manufacturing Co., the world’s largest chip foundry, expects it will take until the first half of 2023 to rebalance inventories to “healthier levels,” CEO C.C. Wei said in an October earnings call.

In contrast, the auto industry is still facing a shortage of semiconductors, even with some products available in shorter delivery times.

“Production cannot move forward if a single semiconductor or component is missing, so there is no choice but to keep the rest of the components in inventory,” said the president of CoreStaff, a Tokyo-based semiconductor trading company.

It also remains a challenge to secure enough supply of semiconductors that rely on older production technology. Automotive semiconductors in particular are expected to remain in short supply throughout the year.

Not only are automakers ramping up production once again, the growing number of semiconductors each car requires is lifting the industry’s demand for chips. An average electric vehicle requires an estimated USD 1,600 worth of semiconductors compared with roughly USD 500 for gasoline-powered vehicles.

While demand for automotive chips is on the rise, the analysts see supplies of power semiconductors used to control electrical currents and analog semiconductors used for power supply management remaining under strain throughout 2023.

“There is still little capital investment and supply for those parts is unlikely to increase rapidly,” according to major Japanese trading company Macnica Holdings.

According to a summary by US chip distributer Sourcengine, delivery estimates for power semiconductors have increased from between 31 weeks and 51 weeks as of the end of May, to between 39 weeks and 64 weeks as of November.

Both Toyota Motor and Honda Motor saw production in December fall short of planned levels due to chip shortages, and the companies will adjust operations of some Japan-based plants this month. Downward pressure on auto output is likely to continue due to limited supply of some chip products, according to Yuichi Koshiba of the Boston Consulting Group.

Some major automakers say part supplies will not return to normal until 2024.

If the global economic slowdown worsens, it will take longer to work through inventories, creating the risk of stronger headwinds to the chip market. Semiconductor companies are expanding supply capacity one after another, raising concerns that the recovery of the supply-demand balance will take even longer.

With government support, companies such as Intel and TSMC are scheduled to begin operations of new US chip plants in 2024. Micron and others have also announced large-scale investment plans.

Although investment in anticipation of long-term demand growth is essential, production capacity will rise sharply. If the pace exceeds the recovery of demand, the supply-demand balance for cutting-edge products may be strained further.

Individual respondents to the Nikkei survey were: Yuichi Koshiba of Boston Consulting Group; Jun Okamoto of KPMG Japan; Tetsuo Omori of Techno Systems Research; Yasuhiko Takeno of Global Net Corp.; Masahiko Ishino of Tokai Tokyo Research Institute; and Yasuo Imanaka of Rakuten Securities. Companies that contributed on a company-wide basis were CoreStaff, Macnica Holdings, Restar Holdings and Kaga Electronics.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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