Re-shoring, HI in the news! 2023 global semiconductor industry forecast unchanged — Future Horizons

Malcolm Penn, Founder and CEO, Future Horizons, UK, reported today at the semiconductor market update seminar that global semiconductor May 2023 update has no change to its forecast of -22 percent growth for 2023.

The global semiconductor industry is fundamentally cyclical by nature. Boom is triggered by factors such as under investment, increased demand, and under capacity. Slump is triggered by over investment, market collapse, and over capacity. During IFS 2021, we had said ‘enjoy the 2022 super cycle, it will crash in 2023’. At IFS 2023, we reiterated 22 percent negative growth for 2023. There was collapsing chip market, coupled with global economic downturn. Downturns are due to excess supply. Upturns are due to supply shortages.

The outlook is shrouded in thick fog, making squaring the circles hard. The economic outlook and health of the global financial system is either stable or scary, depending on who you ask, and where you live. US Fed believes the possibility of avoiding a recession is more likely, than that of having. Recession is paving the way for a pause in interest rate hikes (10 straight increases). Europe’s ECB slowed its interest rate increases to one-quarter point on premise the Eurozone inflation rate was showing signs of ebbing.

USA added 253k jobs in April, and unemployment rate fell to 3.4 percent vs. 3.5 percent in March. The stubbornly high US labor market resilience, and banking crisis that refuses to go away is complicating the outlook and decision-making process. Underlying inflation is also refusing to cool, keeping interest rates high. Higher servicing cost of record high global public, private and household indebtedness is also there. Along with, the ongoing cost and geopolitical repercussions with Russia’s war in Ukraine. There is heightened geopolitical tensions with China regarding Taiwan, and US tech sanctions.

Below trend line shipments still!
In semiconductors, the good news is that unit demand has been an inventory burn in progress, finally. March shipments run-rate was 6.2 billion units/week vs. 8.2 billion peak (down 24 percent). Current run-rate is down 15 percent from actual demand — deficit is inventory burn. Inventory depletion is unlikely to be over before Q4-2023, and longer, if end demand softens. We have now had fourth consecutive month of below trend line unit shipments.

Capex spend has been seriously overheated. Sustained period of under-investment had caused 2021-22 supply shortages. Q2/Q3-2021 capex overspend triggered the 2022 market downturn. 2H-2022 capex spend increased further, despite market downturn. Current capex over-spend is at an all-time record high, impacting 2023-24 sales.

ASPs had plummeted in June 2022. ASP recovery from Dec. 2020 was driven by strong unit demand, maxed out capacity, and product shortages. It plummeted in June 2022, wiping out 85 percent of previous 18 months’ gain in one month. It is bouncing along at current low-level, as ASPs always struggle when there is industry overcapacity.

No change so far!
Global semiconductor growth momentum indicator is still in stormy weather. Gap between curves are now closing, with 3/12 curve starting to bottom. Golden cross is unlikely before Q3-2023. All sector growth rate trends are now negative — for logic, memory, analog, and micro. Semiconductor industry has finally acknowledged that 2023 will be negative. It is still not yet, severity of downturn. It is still undecided on -4 percent to -22 percent growth for 2023.

2023 outlook scenarios are of low, single-digit decline. Any single-digit decline needs Q2 to be positive. Even TSMC is warning of -4 to -9 percent Q2 decline. Low, single-digit decline just doesn’t stand up to scrutiny!

IFS 2023 forecast was negative or -22 percent in January, and has not changed in May. Q1 actual results were -8.2 percent. This is close to Jan. 2023 bull forecast scenario. Worse case scenario of -26 percent negative growth is now not likely to happen. It also skews our overall forecast closer to the best-case scenario.

Global semiconductor May 2023 update has no change to our forecast of -22 percent growth for 2023. We will revise, based on the Q2 number. Stronger Q1 pulls the forecast outlook slightly better. Shift is modest and well within forecast margin of error. Nothing of substance has changed from Jan. 2023. 2024 outlook remains too early to tell. We are statistically back to low, single-digit positive growth. Magnitude and timing depends on the global economy. We will come back to forecast for 2024 in Sept. 2023.

Re-shoring, chiplets, and HI!
We are now in the era of re-shoring and the Chips Acts across USA and Europe. It is very much bottom up vs. top-down driven. Will the end customers actually care? Who is going to absorb/fund the added cost? TSMC stated that their chips from US fabs will be priced 30 percent higher. We have failed to address why production was outsourced in the first place! It will take quite a lot of work on the Chips Acts. The Chips Acts are great! Even with the plans, it is a tip in the ocean, and will take an awful long time.

Intel has got into the foundry business. Its Q1 results were not good! Intel needs to do something new! It will not be the foundry per se. Intel also has a shrinking revenue base, and gross margin is now 30 percent vs. 60 percent. There is also no end in sight to TSMC’s global market dominance. TSMC produces over 60 percent of the world’s ICs. Taiwan alone accounts for over 70 percent of the world’s ICs. No Chips Act can address this issue! It will really take lot of work.

The EDA industry has been doing great. It will continue to do so in the future. Every single wafer was targeted to being sold. You can design your way out of the problem. And, 3D ICs are a way of extending Moore’s Law. Dynamics of the downturn should look at the end of the year. Capacity will still hang over, and will dampen down the recovery. It will be a gradual bounce back.

We are also seeing the emergence of key platforms. These are AR/VR, remote intelligence, AI/ML, and autonomous transport. They will spill over into lot of new apps. We are seeing software-defined vehicle architectures. What is going on regarding software updates? Who is going to manage all that? It will be a huge work!

Technology roadmap is continuing to march forth. It is moving from 3nm for FinFETs to sub-1nm for atomic channel. In advanced packaging, 3D interconnect landscape is moving from 3D-SIP to 3D-SIC, on to 3D-SoC and 3D-IC.

There are talks about chiplets and heterogenous integration (HI). Why now? It is for yield loss from reticle size die. It is optimized intended function to the best technology node. It also works — eg., Xilinx FPGA, AMD CPUs, Intel, DARPA chips. Challenges include chip-to-chip interfaces — AIB, or BoW, or UCIe, business model and KGD, and marketplace of the available chiplets.

SiC crystal growth is quite unique and difficult. They come in different shapes and forms. SiC does not melt, and uses process temperature ~2500degrees C. The move to EV has triggered huge surge in costly SiC components. Cost reduction is needed to move EV downstream into mid- to low-range vehicles. Alternatively, we can reduce the numbers used per car, albeit, at the sacrifice of driving range. Unlike silicon, cost-reduction by scaling up from 150mm, or by improving the wafer defect density levels is no easy matter.

Today, TSMC has growing presence in EV sector. OEM direct model is also present, such as Tesla. Apple, Google, Amazon, Meta, Huawei, Microsoft, etc. are strong on OEM direct.

EV and platforms are the automotive industry’s ‘Nokia’ moment today. 550+ ‘car’ firms have announced EV plans. Most will fail, or be acquired. An exaggerated chip orders will meet optimistic demand. China and India are driving for global EV dominance with low-end market up. They have cars around $9,000. Cheapest EV in USA is Chevrolet Bolt around $26,500. They need to be very careful!

System cyclicality is part of the DNA! No one is immune from market fundamentals — not even the semiconductor industry itself! Intel may no longer reach no. 1 spot, with TSMC taking over! Unless, Intel can buy TSMC! History gives us tools to analyze and explain problems in the past. It provides crucial perspectives for understanding current and future problems.