The real state of the semiconductor industry: layoffs, clearances, shortages and capacity shifts

By Q1 2023, the polarization of the semiconductor market has become more prominent, with new changes in the consumer electronics and automotive electronics markets. On the one hand, demand for consumer electronics products is weak, consumer-grade IC production capacity is in surplus, the performance of industry chain companies is cold and there are big layoffs and production cuts; on the other hand, demand for new energy vehicles continues to be strong, automotive-grade ICs are entering a structural shortage phase, and the wafer expansion projects started during the big shortage are starting to reach production, and the operation of new production lines requires more semiconductor professionals.
As the semiconductor industry involves many areas, its development is difficult to use a simple sentence to summarize, different segments and industry chain links tend to perform very different.
In the first half of last year, I did an analysis of the polarisation of the semiconductor market, focusing on two categories: consumer-grade ICs and automotive-grade ICs. By Q1 2023, the polarisation of the semiconductor market has become more pronounced, with new changes in the consumer electronics and automotive electronics markets.
On the one hand, the demand for consumer electronics products is weak, consumer-grade ICs are overcapacity, and the performance of industry chain companies is cold and there are big layoffs and production cuts; on the other hand, the demand for new energy vehicles continues to be strong, and automotive-grade ICs are entering a structural shortage stage, and the wafer expansion projects started during the big shortage are starting to reach production, and the operation of new production lines requires more semiconductor professionals. This article looks at consumer-grade ICs and automotive-grade ICs, with a view to exploring the true status and trends of the global semiconductor industry by looking at these two types of chips to get a glimpse of the whole picture.
Semiconductor companies are cutting jobs
In 2022, demand for consumer electronics is weak, and semiconductor manufacturers and technology companies are experiencing a chilly performance. In recent months, some companies have announced layoff plans. Focus on recent cases of mass layoffs, mainly initiated by semiconductor companies and technology companies.
(a) On 21 December 2022, memory chip giant Micron Technology announced that it would lay off 10% of its workforce (involving approximately 5,000 people) in 2023, a reduction aimed at addressing the plight of softening demand;
(b) On 26 January 2023, semiconductor equipment provider Panlin Group announced plans to lay off about 7 per cent (about 1,300 people) of its workforce globally, a move affected by the new US regulations on semiconductors in China introduced last October;
In addition, Grosvenor, Synopsys, Intel and Qualcomm also have plans to cut staff by between tens and 800 people.
Overall, the layoffs involve companies in various segments such as chip design, semiconductor equipment, EDA, and chip manufacturing.
In fact, the hardest hit by this wave of layoffs are technology companies. Microsoft, Meta, Amazon, Google and other tech giants have all had tens of thousands of layoffs. According to Layoffs.fyi, more than 200 tech companies worldwide are laying off more than 68,000 employees during January 2023 alone. More than 1,000 tech companies worldwide laid off 154,336 people in 2022.
The above layoffs are all from US companies and need to be analysed in the context of the country's economic situation, but this is not the focus of this article, so I will not expand on it here.
It is worth noting that the layoffs of semiconductor companies, although reflected in the reduction of capital expenditure or business restructuring, it can also reflect the downward trend of the semiconductor industry, while the layoffs of technology companies are mainly affected by the over-expansion of the previous period and the macroeconomic situation. The impact of COVID-19 on the supply chain is receding as countries gradually liberalise control of the new crown epidemic, while international trade disputes, geopolitical turmoil and changes in demand are having an increasingly prominent impact on the global market.
Specifically, weak demand has led to an inward roll in the consumer electronics industry, which has put great pressure on industry chain companies. Coupled with the fact that the trade dispute between the US and China still persists and there is uncertainty as to when the relationship between the two countries will ease, the globalisation of the semiconductor supply chain has been greatly impacted. In addition, although the Russia-Ukraine dispute is accelerating the disruption of the global supply chain, but the two countries' companies mainly in the upper reaches of the semiconductor industry chain, and occupy a small overall market share, so the impact of the Russia-Ukraine conflict on the global semiconductor industry chain is limited.
"Talent scramble" is becoming the focus
Although the last round of core shortage has pushed the global wafer expansion rate, but still need to spend 2-4 years to officially reach production. As new wafer production lines are built in various regions, the industry's demand for semiconductor talent will increase. The industry's mainstream view is that the "talent shortage" will be the primary factor constraining the industry's development in the next 5-6 years.
In recent years, the world's major fabs focus on upgrading 8-inch, 12-inch wafer capacity. 2022 December, SEMI in its latest "world fab forecast report" pointed out: 2021-2023 to start the 84 large-scale chip manufacturing plant total investment of more than 500 billion U.S. dollars, its spending growth also includes the construction of 33 new factories in 2022 and 2023 The increase in spending also includes 33 new fabs to begin construction in 2022 and 28 fabs to break ground in 2023. The report also counts the regions where new fabs/production lines will be built in 2021-2023. Of these, 18 are located in the Americas, 17 in Europe and the Middle East, 14 in Taiwan, China, 6 new fabs each in Japan and Southeast Asia, 3 large fabs/production lines in South Korea and 20 in mainland China (supporting mature processes).
As we all know, it takes several years to build a fab, trial production, and after the new fabs/production lines are in operation, technicians are needed to run the production lines. Intel's executive Ann Kelleher said that a wafer fab needs thousands of skilled engineers to operate the equipment and carry out production. In addition, the development of new materials and production technologies, and further advancement of semiconductor performance, are also inseparable from high-level engineering and technical personnel. In Q4 2022, the Ministry of Human Resources and Social Security of China ranked the semiconductor chip maker 49th in the list of the 100 occupations with the greatest shortage of workers.
According to the "China IC Industry Talent 2020-2021" white paper, China's IC industry talent demand will reach 766,500 by 2023, with a talent shortage of 220,000; Deloitte also predicts that the shortage of chip talent and skills will be exacerbated as local competition in semiconductor manufacturing intensifies. By 2030, the potential labour shortage in the global semiconductor industry will reach 1 million.
The complete semiconductor industry chain includes materials, equipment, design, manufacturing, packaging, distribution and other segments, which require a constant supply of expertise from society. Observing just the semiconductor supply chain part, from chip engineers, supply chain experts, chip manufacturing talents, logistics and distribution workers, warehouse managers ...... every link is competing for skilled talents.
A combination of the above information can be deduced that the shortage of semiconductor talent will become increasingly prominent. At that time, who can seize the talent "high point", who will be able to grasp the initiative of market competition, "talent competition" will become the focus of the semiconductor industry.
Consumer electronics suppliers continue to de-stock
In 2022, sales of consumer electronics products such as smartphones and PCs (personal computers) will suffer a setback, pushing consumer electronics suppliers into a de-stocking phase. The key components of smartphones and PCs are RF, optical lenses, screens, memory, etc. Their suppliers include chip suppliers, software providers, OEMs, etc. What stage has the "de-stocking" of these suppliers reached?
A new Gartner report predicts that global PC shipments will be 267 million units in 2023, down 6.8% from 287 million units in 2022. The agency's analysts say that global inventory levels of PC products will return to normal in the second half of 2023.
Weak consumer demand for PC products has also led to increased order cutting in the PC industry, resulting in high inventories at chip suppliers. In this regard, CINNO Research predicts that the high inventory level combined with persistent weak demand may cause the current round of semiconductor down cycle longer than expected by the market, IC design vendors to inventory process will spread to the first half of 2023.
In this context, PC processor suppliers Intel, AMD, IBM (owned by Lenovo) and other companies' net profits fell by more than 50% year-on-year; Samsung Electronics chip, SK Hynix, Micron Technology and other storage chip makers' performance also suffered a Waterloo - Samsung Electronics chip business (mainly storage chips) operating profit in Q4 2022 plunged 96.9%, SK Hynix 2022 full-year net profit fell 74.6%, Micron Technology 2023 fiscal year first quarter (as of December 1, 2022) net loss of $ 195 million.

In order to try to slow down the decline, memory chip makers have made adjustments to "reduce production", "de-stocking", "saving money" and "delaying the progress of advanced technology". "Starting in October 2022, Armor Man will reduce its 3D NAND flash capacity by 30% at its Yokkaichi and Kitakami plants in Japan; at the end of January 2023, Western Digital announced that it will reduce its NAND flash wafer production by 30% and lower its total capital expenditure to US$2.3 billion in fiscal 2023; Samsung Electronics is also rumoured to be considering reducing its wafer Samsung Electronics is also rumoured to be considering cutting wafer input in order to reduce DRAM and NAND chip capacity. It is believed that the business adjustments of these storage majors will have a profound impact on the entire storage industry chain.
Regarding the trend of the global storage and consumer electronics industry, in December last year, Gou Jiazhang, CEO of storage master controller, pointed out that "the more optimistic view is that the recovery will start at the end of Q2 or July 2023, while the more pessimistic view is that there will be no sign of recovery until the end of 2023. By then, inventory issues will have been properly addressed and the overall storage market is expected to return to dynamism in the second half of 2023 or 2024."
Of course, in addition to processors and storage chips, there are other chips used in consumer electronics, and the performance of these market segments varies. For example, the inventory of the Bluetooth audio market in Q4 last year fell to a lower level, LED power driver chips in now still in the de-stocking stage.
For the consumer chip inventory and cycle situation, Zheshang Securities assistant director & chief of science and technology of the Industrial Research Institute Chen Hang said that the typical inventory cycle of semiconductors can be divided into four stages: active inventory (volume down), passive inventory (volume down and price flat / up), active inventory (volume up), passive inventory (volume up and price flat / down). The current consumer chip inventory cycle is in line with the evolution of these four stages, and is currently at the inventory inflection point, and is expected to usher in the price inflection point by Q2-Q3 in 2023.
During the de-inventory phase, companies may adopt a more aggressive pricing strategy in order to digest excess inventory and consolidate market share, accelerating cost structure optimisation by cutting product prices. Therefore, at this stage there are enterprises will take the initiative to reduce prices, and even the phenomenon of selling at a loss, this phenomenon only represents the spontaneous behavior of individual enterprises, the price of their products is not the real price of the industry.
The weakness in demand in the consumer electronics market is also reflected in supply chain logistics. Today, even the world's most congested ports are no longer congested. Statistics from Freightos, a freight booking and payment platform, show that since June 2022, the total number of imported containers has started to decrease, while logistics freight rates are also being adjusted downwards. in December 2022, US maritime imports were down 10% compared to the same period in previous years, and by May 2023, they are expected to be below the levels of 2021 to 2022.
Automotive-grade chip capacity shifting to home base
The boom in automotive-grade ICs is quite high and their market size is growing considerably. According to the China Association of Automobile Manufacturers, China will sell more than 6.887 million new energy vehicles in 2022, including 5.365 million pure electric vehicles, with the latter accounting for about 78% of the former. The agency also predicts that total sales of new energy vehicles in China will reach 9 million units in 2023, up 35 per cent year-on-year.
In addition, McKinsey data shows that the current average semiconductor cost per conventional vehicle is about US$350, of which US$118 is the cost of power devices, and the semiconductor cost per pure electric vehicle is about US$704, of which US$387 is the cost of power devices.
If the proportion of pure electric vehicles to new energy vehicles in China remains the same, China is expected to sell about 7 million pure electric vehicles by the end of 2023. Based on the above information, I roughly deduce that China's pure electric vehicles will bring US$4.9 billion in demand for automotive semiconductors this year, of which US$2.7 billion is related to automotive power devices.
In the future, the value of semiconductors for fully autonomous vehicles may be 8-10 times that of non-autonomous vehicles. In this regard, KPMG forecasts that the global market for automotive semiconductors is expected to reach US$200 billion by 2040, with a compound annual growth rate of 7.7%. The usage and proportion of automotive chips will also increase with the advancement of automotive technology, and the automotive industry will have a greater demand for wafer capacity.
However, constrained by international trade conflicts, countries/regions around the world are focusing on their local semiconductor supply chains and trying to build up a relatively independent semiconductor ecosystem, which also presents opportunities for local semiconductor companies. Nowadays, the majority (about 80%) of automotive grade ICs have chip processes ≥ 28nm, and a small percentage (about 20%) of automotive grade ICs have chip processes ≤ 14nm.
In the Chinese semiconductor market, for example, mainland Chinese companies can mass produce chips of 28nm and above, and China is not completely "locked out" of the automotive chip sector. During the ongoing trade dispute between the US and China, China has increased its efforts to build up its automotive chain. In recent years, China has added many new auto parts manufacturers, and although most of them are small in size and have a fragmented competitive landscape, a number of outstanding companies have emerged in niche areas, such as China Auto Times Electric and BYD, which have made good achievements in automotive IGBT chips. There are also many Chinese companies coming in from MCU chips. For new entrants into the automotive MCU field, a threshold of tens of millions of units shipped means that their products have passed the initial market validation. For example, the shipments of automotive MCU chips from companies such as Jiefa Technology, CoreWant Microelectronics, Air Core and Saiten Micro have cumulatively exceeded tens of millions of units. In addition to efforts at the enterprise level, the government has also supported the development of the automotive industry by promulgating policies such as the new energy vehicle purchase tax exemption policy and vehicle purchase subsidy policies in various regions. With the support of governments at all levels, automotive industry clusters have been formed in China's Yangtze River Delta region, the Pearl River Delta region, the Eastern provinces region, the Beijing-Tianjin-Hebei region, and the Sichuan-Chongqing area.
As the local automotive industry clusters become increasingly sophisticated, the demand for local automotive chips will only increase in the future, and will also drive the transfer of such chip production capacity to the local market. In fact, not only in the Chinese automotive market has this performance, in other automotive markets around the world will also see a similar trend.
Summary: The future of the semiconductor industry is more diverse
The previous article mentioned the trend in the global storage market, and the trend in the semiconductor industry as a whole is similar: optimists believe that this downward cycle in the semiconductor industry will end in the second half of 2023 at the earliest, while pessimists believe that the downward trend will continue throughout 2023, and we will not see an improvement in the market until 2024.
In fact, both the short-term difficulties and the long-term opportunities are worthy of suppliers' attention. Currently, the localisation of the global chip industry chain has become a trend, with countries/regions around the world attaching more importance to the localisation of chip manufacturing, while the development of local supply chains also requires the support of the local market. At the same time, the semiconductor industry chain requires national efforts to build, and the construction cycle is long and the investment is huge, at least for a long time, the globalisation of the supply chain will remain mainstream. In this context, the semiconductor industry will become more diversified and its supply chain may become more complex.