Chip shortages could become a glut
Over the past year, global semiconductor shortages have caused supply chain chaos, says Daniel Newman on MarketWatch. Now some analysts fear the chip industry could be heading for the opposite problem – “a massive glut of semiconductors in the next year”. Chip firms are racing to bring new capacity online, just when a slowing global economy could “see demand for chips fall off a proverbial cliff”.
Chipmakers are due to spend $152bn on new factories and production equipment this year, a steep rise from the $113.1bn they spent last year, says Dashveenjit Kaur on TechHQ. But even this may not be simple, given reports of a scarcity of “everything from lenses, valves and pumps to microcontrollers, engineering plastics and electronic modules”. Chip-tool makers have told clients that they will have to wait 18 months before “key equipment” and “crucial machinery” can be delivered, says Nikkei Asia. That could mean it takes longer than anticipated for chip supplies to return to normal.
Chipmakers are still cashing in on soaring prices says Dan Gallagher in The Wall Street Journal. In February, the industry recorded global sales of $52.5bn, a monthly record. Yet the PHLX Semiconductor index, which tracks the industry’s leading lights, jumped 43% last year, has fallen by more than a fifth since the start of 2022. Analysts are anxiously watching rising inventory levels among semiconductor buyers, which could herald a future demand drop-off. Chip stocks look cheap – “the average forward earnings multiple for the PHLX index has slumped 23% this year to just over 19 times”. Earnings results in the next few weeks are likely to be impressive. But in such a highly cyclical industry, investors remain sceptical that the good times can last forever.