After more than two years of severe chip shortages there are indications that the semiconductor market is losing steam. Orders for certain chip products have been cancelled, according to TrendForce, and DigiTimes reports TSMC customers have scaled back their demand. IC Insights suggested downgraded sales estimates for the second half of the year (2H) — including Micron’s — are “canaries in the coal mine.”
Micron expects its fiscal 2H sales to decline 17 percent. Recent month-over-month sales results from 10 leading Taiwanese chip makers also show market deceleration.
“In total, these 10 companies posted a 5 percent drop in June sales as compared to May, with three of the four largest companies, including TSMC, registering a decline,” IC Insights reported. “Particularly worrisome is the steep 26 percent decline in the June/May sales by previous ‘high-flyer’ Novatek.”
Typically, a month-to-month sales decline isn’t reason for concern. However, chip companies historically post the strongest sequential increases in monthly revenue in the last month of each quarter, said IC Insights. “Oftentimes, these monthly results provide an early indicator of a possible change in direction in the semiconductor market, up or down.”
Order cancellations are good news for chip-starved industries that will be able to get their hands on devices sooner rather than later. Declining demand for consumer devices along with inflation are loosening up the supply chain. This could be temporary, several analysts point out, but there are other supply chain signals that indicate softness extends beyond chips.
Order cancellations started in large-size driver ICs and TDDI, which rely on mainstream 0.1Xμm and 55nm processes, respectively, according to TrendForce. Although products such as MCU and PMIC were previously in short supply, foundries’ capacity utilization rates remained roughly full through their adjustment of product mix.
A recent wave of cancellations has emerged for PMIC, CIS and certain MCU and SoC orders. Although still dominated by consumer applications, foundries are beginning to feel the strain of the copious order cancellations from customers and a capacity utilization rates have officially declined, the firm said.
TrendForce doesn’t see driver IC demand bouncing back and inventory adjustment has begun for smartphones, PCs, and TV-related peripheral components such as SoCs, CIS, and PMICs. Companies are beginning to curtail their wafer input plans with foundries. Order cancellations are occurring simultaneously in 8-inch and 12-inch fabs at nodes including 0.1Xμm, 90/55nm, and 40/28nm, TrendForce reported. Not even advanced 7/6nm processes are immune.
Although demand remains solid for PMICs and power discretes from servers, automotive, and industrial applications, fabs will have a hard time making up the difference generated by driver IC, consumer PMIC and CIS cancellations.
Eight-inch fabs will run at 90~95 percent capacity in 2H although those serving the consumer market will run closer to 90 percent.
The same situation has occurred in mature 12-inch processes but their products are more diverse. Process transition trends coupled with product upgrades have not been affected by short-term fluctuations, TrendForce said. As a result, capacity utilization can still be maintained at approximately 95 percent.
Compared with operating rates that easily hit 100 percent in the past two years, production line operation has gradually normalized and stabilized, demonstrating a steady balancing of resource allocation.
Supply chain signals
In the broader supply chain, the pace of U.S. manufacturing slipped in June, reported the ISM; demand for air and ocean cargo capacity — and rates — are declining, according to Freightos; and component sales trends are cooling, the ECIA found. As in the chip market, these developments allow manufacturers and service providers to catch up on their backlog.
The question, as always, is “will this last?” The semiconductor industry is set on expanding fab capacity, most of which will advance semiconductor manufacturing processes. But some of it is just capacity.
Advanced processes are used primarily for CPU, GPU, ASIC, 5G AP, FPGA, AI accelerator, etc., said TrendForce. Terminal applications remain dominated by smartphones and high-performance computing (HPC). The weakening smartphone market has dampened demand for 5G APs but stocking momentum for HPC-related products remains stable.
TrendForce projects that 7/6nm capacity utilization rates will decline marginally to 95~99 percent in 2H due to product mix conversion while 5/4nm processes will remain near full load, driven by new products.
5G, electric vehicles and servers will continue to buoy demand, the firm added. The penetration rate of applications such as 5G smartphones and electric vehicles has increased year by year while the stocking momentum of 5G base stations; infrastructure in various countries; automated security inspection measures and server demand from cloud services will continue to support capacity utilization above 90 percent. Lead times for many chips still exceed 50 weeks.
Chip companies are reporting strong earnings growth, MarketGyrations recently wrote, but the concern is that semiconductors may already be past the peak in the current cycle. Downbeat forecasts like Micron’s only add to this perception.
Unfortunately, end-customers have a dismal track record when it comes to forecasting. Following two years of extended lead times, customers have placed orders far ahead so they’ll be first in line when supplies loosen up. Keep a close eye on calendar Q2 earnings for downward sales adjustments and more order cancellations. Those could be the difference between a downturn and a temporary correction.