S&P Global: Semiconductor demand remains subdued, recovery not until later in 2023
Global demand for semiconductors remains subdued and recovery is not expected until later this year, according to the latest supply chain report from S&P Global Market Intelligence ("S&P Global").
In the report, S&P Global cites forward-looking comments from eight industry leaders, including Apple Inc. These industry leaders believe that demand for semiconductors is still declining and that results will not improve in the near term. However, some companies believe that by the third quarter or the end of the year, the situation should be able to show an improvement.
Irene Tunkel, chief strategist at investment advisory firm BCA Research's US assets division, told Firstrade: "We can see that semiconductor sales and prices are falling, and the global de-stocking of semiconductors is not yet complete, so (in the short term) I don't see a signal that demand is turning. "South Korea is a bellwether for global chip exports.
The global memory chip industry has entered a downward spiral since the second half of last year, and South Korea is the world's largest memory chip manufacturer, accounting for 70% of the global market for dynamic random access memory (DRAM). Semiconductors are also one of Korea's most important export commodities, accounting for about 20% of its exports, which are dominated by memory chips.
Preliminary data released by South Korea showed that South Korea's semiconductor exports fell 41% year-on-year in April. This marked the ninth consecutive decline on this basis, with exports 11% below the pre-epidemic level of April 2019.
In this context, South Korea's Samsung saw its company's operating profit plunge 95 per cent year-on-year in the first quarter, and SK Hynix, another major South Korean semiconductor company, released first-quarter results on 26 April showing that its revenue fell nearly 60 per cent year-on-year and it posted a loss for the second consecutive quarter.
Similar declines were seen elsewhere in the electronics supply chain, with solid-state drive (SSD) exports down 80 per cent, microchip packaging products down 50 per cent and displays down 29 per cent.
"Global semiconductor sales have kept pace with economic growth. As consumers shifted their spending to services rather than hardware, demand for chips declined at a time when chipmakers were increasing capacity. As a result, the glut of chips has put downward pressure on prices, leading to margin squeezes and earnings contraction." Donkell said.
According to a survey of 750 electronics companies by S&P Global Purchasing Managers' Index (PMI), production at electronics companies improved in March this year and backlogs of orders are being reduced. This has allowed bottlenecks to be removed and suppliers' delivery times are at their best levels since 2001.
Meanwhile, the reduction in order backlogs is also being reflected in the corporate earnings reports of electronics suppliers, although a recovery is expected later this year.
What 8 leading industry players think
On the corporate side, Donkell believes: "The semiconductor industry will be one of the first to recover as chips are a key input to most technology goods. Commodity producers will place orders for semiconductors months before ramping up production. Therefore, once new orders for the semiconductor industry increase, this will be the first sign of the bottom of this manufacturing cycle. This is why it is important to keep an eye on what chipmakers are telling us."
Communications chipmaker Qualcomm reported a 17 per cent drop in production for the three months to 26 March 2023 and expects further declines due to "weak global handset sales and declining channel inventories". For the full year, Qualcomm expects global smartphone sales to be "down a single-digit percentage", and that "single-digit" figure could be larger.
NXP Semiconductors N.V. expects its revenue for the second quarter of 2023 to be "down about 3 percent compared to the same period last year" due to increased automotive demand, but otherwise down. This means that "the severe shortfall we have experienced over the past two years should subside as we progress towards the end of the year".
AMD Semiconductor expects its revenue to fall by 9 per cent year-on-year in the first quarter of 2023, accelerating to 19 per cent in the second quarter, due to weak demand for personal computers. The company has been looking to "normalise inventories in the supply chain ...... this will happen in the second half of this year."
Diversified chip maker Infineon Technologies AG expects "improvements in consumer markets such as smartphones, PCs and home appliances to be insignificant", although revenue growth in the automotive and green industrial power sectors is expected to "increase slightly". The company expects to see a "slight increase" in revenue growth in the automotive and green industrial power sectors.
US specialty chemicals supplier Avantor reported a 9% decline in revenue for the first quarter of 2023, including "weak demand for formulation solutions from our semiconductor customers". The company expects full-year revenues to fall by up to 3%, including "more significant semiconductor headwinds" that will "moderately accelerate" in the second quarter of 2023.
DuPont de Nemours reported that its electronics and industrial sales fell 16 per cent in the first quarter of 2023 due to "lower semiconductor plant utilisation as a result of weak end market demand and channel inventory build-up". For the remainder of the year, it expects "utilisation rates to bottom out in the near term and improve in the third quarter".
Apple, for its part, reported a 3 per cent year-on-year revenue decline for the three months to April 1, 2023, with Mac and iPad sales down 31 per cent and 13 per cent respectively. The company cited "macroeconomic issues" and new product launches a year ago as dragging factors. Apple did not see an improvement in results, saying that "year-over-year revenue performance in the June quarter was similar to the March quarter".
Among other things, iPhone sales improved, bringing Apple's total sales above analysts' expectations. The company said that "supply was not an issue in the second quarter". The company "continues to invest everywhere" after the "parade of horrors" that has been the electronics supply chain for the past three years.
Apple supplier Wistron Corporation is reportedly selling one of its factories in India. The company has been producing Apple's iPhones for the local market at the factory since 2018.
In an unusual move for both Quanta and the personal computer manufacturing industry, Quanta Computer will begin OEM production of Apple's MacBooks in Vietnam's Nam Dinh province.
Logitech International S.A., a computer peripherals manufacturer, said that "supply chain issues seem to be a thing of the past". Nevertheless, it expects revenue to be "down about 22 to 18 per cent" year-on-year over the next six months as its corporate customers "spend more conservatively".
In the report, S&P Global cites forward-looking comments from eight industry leaders, including Apple Inc. These industry leaders believe that demand for semiconductors is still declining and that results will not improve in the near term. However, some companies believe that by the third quarter or the end of the year, the situation should be able to show an improvement.
Irene Tunkel, chief strategist at investment advisory firm BCA Research's US assets division, told Firstrade: "We can see that semiconductor sales and prices are falling, and the global de-stocking of semiconductors is not yet complete, so (in the short term) I don't see a signal that demand is turning. "South Korea is a bellwether for global chip exports.
The global memory chip industry has entered a downward spiral since the second half of last year, and South Korea is the world's largest memory chip manufacturer, accounting for 70% of the global market for dynamic random access memory (DRAM). Semiconductors are also one of Korea's most important export commodities, accounting for about 20% of its exports, which are dominated by memory chips.
Preliminary data released by South Korea showed that South Korea's semiconductor exports fell 41% year-on-year in April. This marked the ninth consecutive decline on this basis, with exports 11% below the pre-epidemic level of April 2019.
In this context, South Korea's Samsung saw its company's operating profit plunge 95 per cent year-on-year in the first quarter, and SK Hynix, another major South Korean semiconductor company, released first-quarter results on 26 April showing that its revenue fell nearly 60 per cent year-on-year and it posted a loss for the second consecutive quarter.
Similar declines were seen elsewhere in the electronics supply chain, with solid-state drive (SSD) exports down 80 per cent, microchip packaging products down 50 per cent and displays down 29 per cent.
"Global semiconductor sales have kept pace with economic growth. As consumers shifted their spending to services rather than hardware, demand for chips declined at a time when chipmakers were increasing capacity. As a result, the glut of chips has put downward pressure on prices, leading to margin squeezes and earnings contraction." Donkell said.
According to a survey of 750 electronics companies by S&P Global Purchasing Managers' Index (PMI), production at electronics companies improved in March this year and backlogs of orders are being reduced. This has allowed bottlenecks to be removed and suppliers' delivery times are at their best levels since 2001.
Meanwhile, the reduction in order backlogs is also being reflected in the corporate earnings reports of electronics suppliers, although a recovery is expected later this year.
What 8 leading industry players think
On the corporate side, Donkell believes: "The semiconductor industry will be one of the first to recover as chips are a key input to most technology goods. Commodity producers will place orders for semiconductors months before ramping up production. Therefore, once new orders for the semiconductor industry increase, this will be the first sign of the bottom of this manufacturing cycle. This is why it is important to keep an eye on what chipmakers are telling us."
Communications chipmaker Qualcomm reported a 17 per cent drop in production for the three months to 26 March 2023 and expects further declines due to "weak global handset sales and declining channel inventories". For the full year, Qualcomm expects global smartphone sales to be "down a single-digit percentage", and that "single-digit" figure could be larger.
NXP Semiconductors N.V. expects its revenue for the second quarter of 2023 to be "down about 3 percent compared to the same period last year" due to increased automotive demand, but otherwise down. This means that "the severe shortfall we have experienced over the past two years should subside as we progress towards the end of the year".
AMD Semiconductor expects its revenue to fall by 9 per cent year-on-year in the first quarter of 2023, accelerating to 19 per cent in the second quarter, due to weak demand for personal computers. The company has been looking to "normalise inventories in the supply chain ...... this will happen in the second half of this year."
Diversified chip maker Infineon Technologies AG expects "improvements in consumer markets such as smartphones, PCs and home appliances to be insignificant", although revenue growth in the automotive and green industrial power sectors is expected to "increase slightly". The company expects to see a "slight increase" in revenue growth in the automotive and green industrial power sectors.
US specialty chemicals supplier Avantor reported a 9% decline in revenue for the first quarter of 2023, including "weak demand for formulation solutions from our semiconductor customers". The company expects full-year revenues to fall by up to 3%, including "more significant semiconductor headwinds" that will "moderately accelerate" in the second quarter of 2023.
DuPont de Nemours reported that its electronics and industrial sales fell 16 per cent in the first quarter of 2023 due to "lower semiconductor plant utilisation as a result of weak end market demand and channel inventory build-up". For the remainder of the year, it expects "utilisation rates to bottom out in the near term and improve in the third quarter".
Apple, for its part, reported a 3 per cent year-on-year revenue decline for the three months to April 1, 2023, with Mac and iPad sales down 31 per cent and 13 per cent respectively. The company cited "macroeconomic issues" and new product launches a year ago as dragging factors. Apple did not see an improvement in results, saying that "year-over-year revenue performance in the June quarter was similar to the March quarter".
Among other things, iPhone sales improved, bringing Apple's total sales above analysts' expectations. The company said that "supply was not an issue in the second quarter". The company "continues to invest everywhere" after the "parade of horrors" that has been the electronics supply chain for the past three years.
Apple supplier Wistron Corporation is reportedly selling one of its factories in India. The company has been producing Apple's iPhones for the local market at the factory since 2018.
In an unusual move for both Quanta and the personal computer manufacturing industry, Quanta Computer will begin OEM production of Apple's MacBooks in Vietnam's Nam Dinh province.
Logitech International S.A., a computer peripherals manufacturer, said that "supply chain issues seem to be a thing of the past". Nevertheless, it expects revenue to be "down about 22 to 18 per cent" year-on-year over the next six months as its corporate customers "spend more conservatively".
