The semiconductor shortage during the COVID-19 pandemic hit major sectors, including auto, smartphones, gaming consoles and more. Now, some believe that this shortage has turned into a glut — especially for the smartphone and the PC markets.
From phones to computers, semiconductors are vital for making electronic gadgets work.
During the COVID-19 pandemic, there was a lot of disruption in the supply chain and production of chips, leaving customers waiting for months on end for products and even leading to a production drop in the automotive sector.
Since then, the supply has been steady. Several regions like India, the US, China, Japan and Europe are even shelling out incentives to invite local manufacturing of chips instead of depending on imports. However, the chip-making business is also vast and some parts of it seem to be facing a glut.
The world’s largest chipmaker Taiwan Semiconductor Manufacturing Company (TSMC) also saw a dip in its net income in the second quarter by 23.3% compared to last year. This was the company’s first quarterly decline in four years.
China’s largest chipmaker Semiconductor Manufacturing International Corp, better known as SMIC, reported its third consecutive fall in quarterly revenue and blamed the slowed-down smartphone market for it.
Samsung also reported a 95% annual drop in profit for the second quarter.
“As post-pandemic demand for PCs, smartphones, and consumer devices eased, capacity grew in the semi market. In fact, we’ve gone from a chip shortage in 2021-2022 to underutilization of capacity in some parts of the semi value chain. Some say this is a harbinger of a massive capacity glut, implying we no longer need to worry about securing our semiconductor supply chain. We disagree,” Bain & Co said in a September report titled ‘After the Chip Shortage, Fears of a Capacity Glut Are Overblown.’
According to a report from CNBC, two types of semiconductors are currently in oversupply — NAND and DRAM. These chips are generally used in laptops and smartphones — two sectors which are also experiencing a slowdown for quite a while.
The global smartphone shipments, as per Counterpoint Research, dropped for the ninth consecutive quarter in September. The shipments were down by 8% in the third quarter of 2023.
The global PC market also faced a similar low, with shipments declining 9% in the July-September quarter, according to Gartner.
CNBC noted that chips made for the auto sector are still seeing a strong demand. However, swapping chips made for specific purposes is not exactly easy or cheap.
“Bleeding-edge fab shells (7-nanometer nodes and below) are not cheap, costing about $2 billion and taking more than two years to build. Even greater expense lies in the equipment, which can run up to $9 billion and take up to 18 months to qualify and ramp up,” the Bain & Co report said.
The report also noted that while government subsidies might influence the location of fabs built, they are unlikely to lead to structural overcapacity. “Although the US and EU are offering about $100 billion in subsidies through 2030, this is only a fraction of the $1 trillion in capex that the semiconductor industry plans to invest.”
