The global chip market remains on-course to contract by 22 percent in 2023, according to Malcolm Penn, and his Future Horizons organization.
Speaking at chip market seminar he added that the industry needs to change its business planning and capital expenditure risk assignment to soften the deep cyclicality of the industry. When attendees asked about the projected long-term need to increase manufacturing capacity, Penn agreed that long-term unit demand trends support this but added: “There has to be a better way to bring on manufacturing capacity in a gradual manner.”
In his seminar Penn said he has stuck to his forecast – given back in September 2022 (see Chip market growth in 2023 will be ‘deeply negative’ says analyst). He also stuck to his assertion that rival forecasters who think the chip market will experience a “soft landing” with only a single-digit percentage decline are being over-optimistic.
Penn’s forecasting is based on a top-down methodology that draws inputs from the general economy; unit demand and ramping or drawing down of inventory; chip manufacturing capacity and capacity utilization, and average selling prices (ASPs).
“Having been through the numbers and trends there is no way I can arrive at anything but a double-digit decline for 2023,” said Penn. It will be hard but it is normal, and inevitable.”
Penn has now filled out his 2023 forecast with bull and bear outlier figures.
On the bullish side, if the downturn hits bottom quickly and the market starts to climb in 2H23 the best that Penn can see is a 2023 market contraction of 17 percent. If the downturn is deeper and more prolonged and the market turn happens late in 2023 or is pushed into 2024 Penn thinks the contraction could be as much as 26 percent.
For 2022 Penn predicted 4 percent positive growth. In the absence of figures for December 2022 from World Semiconductor Trade Statistics (WSTS) was unable to confirm how accurate he had been. The December figure is due early in February but it appears that the full year might show just 2 or 3 percent annual growth.
Penn added that the cyclicality of the semiconductor industry is deep and driven by the fact that wafer fab and manufacturing capacity delivery times are of the order of a couple of years while chip orders can be added and deleted almost instantaneously.
There have been two models of capital expenditure in the past, Penn said. “Building capacity to market forecasts leads to oversupply. Building to orders results in undersupply.”
Penn said the industry had been doing the latter which led to the supply chain crisis. The industry then flipped and embarked on a spurt of wafer fab building leading to oversupply just as demand is collapsing. “We need a new model where OEMs share the capital expense business risk,” said Penn.
“Semiconductor industry executives need to do better. You didn’t see toilet roll manufacturers rushing to build new factories during the Covid-19 shortage. They knew the high demand was a pull-forward bubble.”
The industry has only just started to acknowledge that 2023 will be negative – but not yet the magnitude of the fall. But bad news keeps surfacing in terms of job cuts, said Penn.
Penn said it is too early to call 2024 but in the absence of other unusual influences the market would revert to low single-digit percentage growth.
In conclusion Penn said: “The seventeenth industry down cycle is now in full flow. Collapsing demand coupled with increasing manufacturing capacity and, now, a global economic downturn.” But in more optimistic turn added: “It’s time to start planning for the next upturn now. The seventeenth industry upturn is just around the corner.”