But will there be enough demand in 2023 or beyond for all this new capacity in such a cyclical industry?
By Wolf Richter for WOLF STREET.
Despite the shortages of certain types of semiconductors, overall sales by chipmakers around the world hit a new record of $49.7 billion in November (three month moving average), the seventh record in a row, up 24% from a year ago, and up 35% from two years ago, according to data from the World Semiconductor Trade Statistics. With one month left, the industry has already set a new annual record.
The 23% plunge in chip sales from October 2018 through April 2019, marked in the chart below, was in part due to the collapse in demand for the specialized chips for crypto mining rigs, whose sales had collapsed after crypto prices had collapsed, with Bitcoin down by 85% from $20,000 in December 2017 to $3,200 by December 2018. But now crypto mining rigs are in high demand, along with all types of other semiconductors, and some semiconductors are in short supply, despite booming production.
The data and chart, being expressed in dollars, also shows the impact of price changes of semiconductors that have been rising since October 2020. One of the component in the collapse of sales from October 2018 through April 2019 was a downturn in semiconductor prices.
The US semiconductor industry – companies such as Intel, TI, NVIDIA, etc. – still had 47% of the global market share in 2020, according to the Semiconductor Industry Association’s 2021 industry report, but they’re manufacturing part of their products outside the US, and some of their chips are manufactured by contract manufacturers in other countries.
In terms of semiconductors manufactured in the Americas by all companies, including companies like Samsung with plants in the US: Sales jumped by 28.7% year-over-year in November (three-month moving average) to $11.5 billion. This was the highest year-over-year growth rate of any geographic region.
But all regions showed large growth rates in semiconductor sales:
- Americas: +28.7% ($11.5 billion)
- Europe: +26.3% ($4.3 billion)
- Japan: +19.5% ($3.9 billion)
- China: +21.4% ($16.9 billion)
- Asia Pacific/All Other: +22.2% ($13.1 billion)
Automakers and heavy equipment makers have been hit hard by shortages of some specific chips, and with just one component missing, the vehicle cannot be sold. Automakers have been discussing the prospects of shortages in 2022. Shortages are continuing, and there is no consensus, but it seems that at least some problems will persist possibly into 2023. Many other issues already improved in late 2021 and are expected to further improve in 2022.
The industry is heavily investing in production facilities, including in the US. But it takes years to build and equip these multi-billion-dollar manufacturing plants, and those plants won’t come online soon enough. There is a global drive underway to increase production. For China, semiconductors have become a national priority.
By the end of this year, construction on 30 new plants will have started, according to industry organization SEMI in June. And the amounts are huge. In September it estimated that $100 billion will be invested globally this year just for equipment for front-end fabs, where the silicon wafers are processed, up from a record $90 billion last year.
Governments around the world are pushing for massive investment in semiconductor manufacturing capacity. After the shortages, semiconductors are now considered a globally critical industry.
The four semiconductor giants – TSMC (Taiwan), Intel (US), Samsung (South Korea), and SMIC (China) – have released plans to invest nearly $400 billion in semiconductor plants around the globe over the next few years, according to the Nikkei Asia.
In addition, China, burned by US sanctions on semiconductors, is making a huge push to become 70% self-sufficient in semiconductors.
Given this flood of planned investment in new capacity, research group IDC is now penciling in the potential for overcapacity in 2023, according to the Nikkei. The semiconductor industry is cyclical, as the chart above shows, with demand suddenly plunging, and prices plunging, and huge investment projects being put on the back-burner. And suddenly when demand picks up, and then suddenly skyrockets, supply is constrained, prices spike, and it’s off to the races again.
But the shortages that began appearing in late 2020 are a different ball of wax than the regular supply constraints; and now the investment plans in reaction to those shortages are a different ball of wax as well, far bigger than ever before.
And someday, that boom in demand for crypto mining rigs is going to hit the skids again, or other demand falls off, such as from data centers. And then it’s back to the old cyclicality, with overcapacity and a glut of semiconductors waiting at the other end, once again. But for now, that’s just wishful thinking for automakers that cannot get all the components needed to put their cars together.
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