Analyst Malcolm Penn has reduced his view of the global chip market to 4 percent growth in 2022 followed by a 22 percent contraction in 2023.
Penn, the CEO and founder of Future Horizons, has been warning about the advent of 17th market downturn for about 18 months. And he pointed out in a Zoom conference that in the areas of economy, unit demand, capital expenditure and average selling prices “every single warning light is now flashing red.”
These are Penn’s “four horseman of the apocalypse” and rarely has the outlook been worse not least because of the global economy headed towards recession and inflation at the same time.
Penn said that unit shipments have been exceeding a long-term average in growth for several quarters implying that customers have been double ordering and consigning components to inventory. As customers start to turn down orders the average selling prices follow. “ASPs plummeted in June,” Penn said which was ahead of his expectation of 3Q22.
IC ASPs plunged 18.1 percent, from 2Q22 peak of US$1.350 down to US$1.105 at the end of the quarter driven by a collapse in memory prices, Penn said. Memory prices dominated with a 20.2 percent fall. But Penn indicated it was simply a matter of timing with ASPs for logic, micro and analog components heading downwards in 3Q22.
Penn’s view of capital expenditure is that this has been at a historical high rate for a couple of years – 23 percent of sales versus the long-term average of about 13 percent of sales. Much of this spending will produce capacity just when it does not be needed, Penn observed.
In the webinar Penn concluded that the “crash” was arriving slightly early and this precipitated the downgrade in the growth estimate. In January 2022 Penn forecast the chip market would grow by between 4 and 14 percent with 10 percent as the most likely figure. Now Penn sees between 2 and 6 percent growth in 2022 with the middle of that spread being the most likely figure.
Penn said the general economic situation and the cyclical nature of the semiconductor industry means that “there will be no soft landing.” “There is no chance of anything but a deeply negative 2023.
While chip makers and vendors may be facing hard times ahead Penn said the EDA, IP licensors and design houses will tend to be the beneficiaries of the downturn. “It always happen that the industry designs out of a downturn.”
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