The leading semiconductor chip companies are talking about large increases in capital expenditure in both the short and long-term – tens of billions of dollars a year being sustained for a decade or more, although there have also been assertions from some that they should be using tax-payers’ money as well as that of shareholders.

At present the semiconductor industry is experiencing substantial demand from increased automotive electronic content, 5G smartphones and infrastructure, the internet of things (IoT), data centers, and accelerated PC growth due to pandemic-driven home-based work, education, and entertainment. But time lags in bringing production online means that massive jumps in spending have nearly always triggered an oversupply followed by component price and market collapse.

So is a market collapse coming and in which calendar year will it land?

Semiconductor capital expenditure in dollar-billions.

Taiwan Semiconductor Manufacturing Co. Ltd. the leading foundry, is forecasting a $30 billion capex in 2021, a 74 percent increase from 2020. TSMC announced in March it plans to invest $100 billion over the next three years, primarily for capex. SC-IQ estimates TSMC’s 2023 capex will be $35 billion or more.

Samsung is also expected to spend about $30 billion on semiconductor capex in 2021. Samsung Group announced a plan to invest 240 trillion won (US$210 billion) over the next three years to expand its businesses. An analyst has indicated that just under half is likely to be semiconductor capex. SQ-IC reckons Samsung’s 2022 CapEx will be $32 billion or more.

Intel has said it plans to spend $25 billion to $28 billion on capex in 2022, following $18 billion to $19 billion in 2021. Intel will use the funds in an effort to become a major foundry as well as expand and advance capacity for its own products. Based on the mid-point of these ranges, Intel capex will increase 30 percent in 2021 and 43 percent in 2022.

While these three make up about 50 percent of industry capex many other chip manufacturers are also increasing spending. Gartner’s July forecast for 2021 industry capex was $141.9 billion, a 28 percent increase from 2021.

And to judge from SC-IQ’ historical chart it turns out that a 28 percent increase in capex is just about over the historical danger mark.

Annual percentage change in semiconductor capital expenditures versus semiconductor market. Source: SC-IQ, Gartner, WSTS.

The green line on the left axis is the annual change in capex from 1984 through the forecast for 2021. The blue line on the right axis is the annual change in the semiconductor market.

The red Danger line is set at 56 percent. In years when capex growth has exceeded 56 percent, the semiconductor market in the following year has declined or seen a significant deceleration. The orange warning line is set at 27 percent. When capex growth has been over 27 percent but less than 56 percent, the semiconductor market experienced a decline in the next two to three years.

On this basis Semiconductor Intelligence (SC-IQ) reckons the market growth will slow in 2022 and the market contract in 2023.

Related links and articles:

News articles:

TSMC’s $100bn fab plans to expand capacity

Samsung to triple foundry production by 2026

Infineon to increase capex 50% to €2.4 billion in FY22

TSMC approves $3.5 billion spending for Arizona fab

Bosch raises 2022 semiconductor capex to €400 million

Micron plans for $7 billion Japanese DRAM fab

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