Semiconductor shortage: industry heads for “supersize bust”

The semiconductor shortage could soon become a semiconductor glut as demand for electronic gadgets falls while state subsidies could mean a surplus of supply.

“Chipmakers are the coalface of the modern economy,” says Cormac Mullen on Bloomberg. Demand for semiconductors is a good “leading indicator” for stockmarkets and the economy.

The industry is heading for a slump, say Debby Wu, Jeran Wittenstein and Ian King, also on Bloomberg. The global shortage of chips that started during the pandemic is not over yet – average wait times were 27 weeks in June, up from less than 15 weeks pre-pandemic – but the cycle has clearly started to turn.

The PHLX Semiconductor index, which tracks the industry’s leading lights, gained 43% in 2021, but has fallen 24% since the start of this year. “Disastrous” second-quarter results from Intel and a revenue warning from graphics-card specialist Nvidia show a market that is “rapidly weakening”, says Dan Gallagher in The Wall Street Journal.

Demand for PCs and smartphones has dropped this year: many consumers bought new gadgets during lockdown and don’t feel the need to upgrade. But more worrying is a warning from memory-chip business Micron that demand from big names in the cloud-computing and car industries is also starting to weaken.

Huge state subsidies in the US, Europe and Asia are likely to push the chip industry into long-term overcapacity, says The Economist. Last year’s shortages have convinced leaders that chipmaking is too important to be done overseas in unfriendly countries.

Not that the industry needed government help to overbuild: Intel, Samsung and Taiwanese giant TSMC jointly “invested $92bn…last year”. Some 58 new “fabs” – as semiconductor plants are called – “are scheduled to open between 2022 and 2024”, raising global capacity by about 40%. When that supply comes online, the chipmakers could be heading for “a supersize bust”.

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