The tumultuous year of 2022 has triggered inventory adjustments in the semiconductor industry, prompting companies to respond to short-term downturn cycles. However, the underlying development trends are worth noting. Numerous application technologies such as artificial intelligence (AI), augmented/virtual reality (AR/VR), the Internet of Things (IoT), autonomous driving, electric vehicles, high-performance computing (HPC), aerospace, satellite communication, 5G/6G, and smart cities all rely on the progress of semiconductor technology to achieve innovation, we believe the following trends will impact the development of the semiconductor supply chain in 2023 and the years to come.
01. Reduce supply chain disruptions
As countries gradually lift their pandemic prevention and control measures, a new supply chain ecosystem is taking shape, and the logistics and supply chain disruptions caused by pandemic prevention and control in the past two years will eventually be resolved. The risks of epidemic lockdowns and power shortages in China still exist, but with the gradual relaxation of pandemic control measures, the macroeconomic situation may improve.
02. New product launches stimulate demand
AMD, Intel, and NVIDIA all plan to launch new CPU and GPU products in 2023. Apple will also release new laptops with 3nm chips manufactured by TSMC in 2023. It is rumored that Apple will launch AR/VR devices in 2023, and sales of new innovative terminal products will drive chip growth. According to DIGITIMES Research, the high inventory of various components and finished products will be digested in the first half of 2023.
03. Regionalization and localization
In addition to the government’s incentive measures to increase domestic chip production, the longer-than-expected Russia-Ukraine conflict has also prompted semiconductor companies to seek alternative material sources and cultivate domestic suppliers. Companies have been tested during the difficult times of the past two years and have developed stronger resilience in supply chain management.
At the same time, climate policies such as net-zero carbon emissions requirements are driving companies to reduce their carbon footprints. End-device customers may begin to demand chips produced near their major markets or assembly locations, increasing regionalization rather than globalization. According to reports, Apple has already placed orders for 3nm chips produced in the United States, and TSMC’s confirmation of plans to produce 3nm chips in Arizona provides further evidence of this trend.
04. Decoupling will continue
Due to the potential for further regulatory restrictions and technological export controls in the future, everyone will be affected. There have been reports that companies are attempting to reduce their use of US technology or change their supply chain to avoid US sanctions.
Gabriel Chou, Vice Chairman of the Asia-Pacific region for the World Semiconductor Trade Statistics (WSTS), stated that the WSTS will soon release its latest forecast for 2023. “We expect to revise downward.” The WSTS’s previous forecast, released in August, projected that the global semiconductor market would grow 4.6% to $662 billion in 2023, while it was expected to grow 13.9% in 2022.
Eric Chen, a semiconductor analyst at DIGITIMES, predicts that due to macroeconomic uncertainty and the US-China tech war, global foundry manufacturer revenues will experience a 2-3% decline in 2023.
“Looking ahead to 2023, considering that inventory correction of end products will continue into the first half of 2023, economic prospects will affect people’s willingness to consume, and the inventory correction of end products is likely to be extended. Global foundry revenue is expected to decline by 2.3% in 2023, with TSMC being the only foundry that will achieve growth in 2023,” Chen wrote in his latest report. According to DIGITIMES Research, foundry market revenue is expected to grow by 25.8% to $137.2 billion by 2022.
Although geopolitical risks are continuously mentioned by analysts as a major uncertainty that could disrupt supply chains, it is not as worrisome for many semiconductor manufacturers as the “demand freeze” that requires end device customers to correct inventory. Semiconductor companies unanimously believe during their Q3 earnings conference calls that inventory adjustments and weak consumer demand are the biggest impacts on their performance in the first half of 2023.
05. Memory Module oligopoly competition heats up
Micron has announced production cuts for DRAM and NAND in order to mitigate the impact of falling prices, while SK Hynix has also announced a 50% reduction in capital expenditures. These measures are helpful in resisting the decline in memory prices, but we need to pay attention to Samsung’s actions, as it is the only company that has refused to cut production or capital expenditures. The competition in the market for NAND flash with 200+ layers is fierce. SK Hynix plans to launch DDR5 chips on a 1 beta processing node in the first half of 2023, while Micron has started mass production of its 1 beta processing node chips in Taiwan, China in 22Q4 and is currently preparing to mass-produce 1 gamma node in 2024.
06. More companies are using Arm and RISC-V architectures
The trend of brands and system owners designing their own chips has become mainstream, with many choosing Arm or RISC-V architecture. While some may find Canalys’ recent prediction ambitious that 50% of the server and 30% of the laptop markets will be based on Arm architecture by 2026, the rapid growth of RISC-V maybe even more surprising. Calista Redmond, CEO of the RISC-V International Foundation, has stated that by 2025, RISC-V is expected to occupy 14% of the global CPU market and 10% of the global automotive core market, and RISC-V cores are likely to see another 100% growth in 2023. Semico predicts that the compound annual growth rate of RISC-V cores from 2018 to 2025 will be close to 160%.
07. Moore’s Law is not only continued by EUV
Foundries are developing innovative technologies such as carbon nanotubes, memory computing, 3DIC heterogeneous integration, and composite materials to manufacture chips that occupy less space, offer greater computing power, and consume less energy. Additionally, new players are entering the competition. Besides supply-side efforts, if there is sufficient innovation in end devices to drive demand for sub-2nm chips, we will see the continuation of Moore’s Law, which predicts that the number of transistors on a chip will double every two years.
08. Talent crunch
Due to the complex division of labor in the global semiconductor supply chain, there simply aren’t enough engineers to fill the industry’s job vacancies worldwide, at least not in the short term. Taiwan is already experiencing this situation, having the most semiconductor engineers to produce 60% of the world’s chips. While many countries and companies have invested funds and resources to constrain chip supply and increase domestic production, the talent shortage is unlikely to be resolved in the short term and may hinder the effectiveness of investments. In countries that are either building or starting from scratch to construct their semiconductor industry ecosystems, the talent shortage will be even more severe. Without sufficient talent, the massive investments required to build domestic chip production will remain a pipe dream.