Nikkei: Chip makers set a record inventory, and the risk of oversupply increases sharply
According to Nikkei, as of the end of June, the total inventory of the world’s nine leading chip manufacturers reached a record high of US$64.7 billion, as the company quickly moved to increase production to alleviate chronic shortages, which have disrupted automobiles. Supply chain in industry and other fields.
Digitalization and the rise of fifth-generation wireless technologies have made chips an indispensable part of cross-industry, and the coronavirus pandemic has forced many chip manufacturers to suspend production in Southeast Asia. Despite their frenzied expansion of production capacity, chip makers still struggle to keep up.
CC Wei, CEO of TSMC, said that demand for high-performance computers and automobiles has exceeded expectations. The world's largest chip manufacturer optimized its production line from January to June, during which the output of automotive chips increased by 30% year-on-year.
The global semiconductor shortage has also caused a shortage of new chip manufacturing equipment. Nvidia CEO Huang Renxun said on Wednesday's earnings conference call: "I expect we will see a supply-constrained environment for most of next year." Nvidia outsources the chip manufacturing process to external foundries.
As chip manufacturers expand raw material inventories to promote production, the total inventory of TSMC, Intel, Samsung Electronics, Micron Technology, SK Hynix, Western Digital, Texas Instruments, Infineon Technologies and STMicroelectronics is currently at a historical high. Among the seven companies that provide comparable data, the share of raw materials in total inventory has been rising steadily since March 2019, and has exceeded 24% by the end of March.
At the same time, finished chips have been removed from the shelves. When the total inventory increases, the turnover rate usually decreases. However, sales have been growing faster than inventory, and the turnover rate for the April-June quarter was 7.8, the highest level in 18 months.
Samsung Electronics and other leading chip manufacturers have established record inventories, including finished products, work in progress, and raw materials. Nevertheless, people worry that the growing inventory may not accurately reflect actual chip demand.
For example, many automakers are now transitioning from just-in-time strategies (or keeping as few parts inventory as possible in the shortest time possible) to maintaining spare inventory in the event of a supply chain disruption.
"We may need to change the way we handle inventory, such as cultivating more chip suppliers," said Seiji Kuraishi, executive vice president of Honda Motor.
As of the end of June, electronic equipment manufacturer Fujitsu General had also increased its inventory of chips and other components and materials by approximately 20% in three months.
Vice President Hiroshi Niwayama said: "We are securing more components, even if this means that there will be a larger inventory in the case of semiconductor shortages and delays."
Chip manufacturers worry that these developments may lead to oversupply.
"We have an order that represents approximately two years of revenue," said Helmut Gassel, chief marketing officer of Infineon Technologies. "We expect some double rankings, which, as always, cannot be quantified."
Memory chips have shown signs of slowing down, with three major manufacturers including Micron Technology and SK Hynix reporting a steady decline in inventories.
As a benchmark for dynamic random access memory used in computers, the bulk price of 4GB DDR remained roughly the same for the second consecutive month in July, at approximately US$3.20 per chip. Global shipments of smartphones that require memory chips also dropped significantly from April to June.
Akira Minamikawa of research firm Omdia said: “The supply of memory chips may exceed demand in the first half of 2022, leading to price drops.” As investors prepare for the final adjustment in the chip market, the share prices of Samsung and Micron plummeted this month .
Despite this, the leading chip manufacturers continue to make a fortune. The top 10 companies by market capitalization had a net profit of 30.3 billion yen (US$276 million) from April to June, an increase of approximately 60% year-on-year, and achieved growth for the sixth consecutive quarter.
They are also looking for large-scale expansion, mainly on logic chips. TSMC plans to make a capital investment of US$100 billion within three years. Intel has announced plans to build a new $20 billion factory in Arizona.
But in the past, the chip industry has experienced major volatility. Once the market cools down, the excess capacity accumulated during the boom puts a burden on manufacturers. The expansions currently underway will go live in two to three years, which means they may eventually drag the company down.
Analyst: Be wary of overcapacity in chips and destroy the industry
According to a report by Reuters in March this year, chip shortages plague the automotive and electronics industries. Governments around the world are subsidizing the construction of semiconductor factories, which highlights the unique dependence of the world on Taiwan’s important supplies.
However, in addition to reaching a consensus that some measures must be taken to achieve diversification of supply, divergence on strategy is also forming, and people are worried that a free-spending government may stimulate the over-construction of this historically highly cyclical industry.
The governments of the United States, the European Union and Japan are considering spending tens of billions of dollars on cutting-edge "fabs" or chip manufacturing plants because they are increasingly uneasy about the status quo that more than two-thirds of advanced computing chips are produced in Taiwan. .
The report further pointed out that demand for chip factories outside of Asia prompted Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics Co., Ltd. (the only two chip contract manufacturers capable of manufacturing the most advanced computing chips) to draft new plans in the United States and the United States the plan of the factory. Fight for US subsidies that may exceed $30 billion.
Intel Corporation, another of the "big three" that produces cutting-edge chips, disclosed on Tuesday that it plans to open its factory doors to external customers and build new factories in Europe, which significantly changed the wafers in the United States create a competitive environment.
The end result may be a government-supported structural adjustment of the semiconductor industry. For decades, chip companies in the United States and Europe have outsourced their manufacturing operations to Taiwan and South Korea in the name of efficiency, and provided billions of people with cheap computing power.
VLSI Research CEO Dan Hutcheson told Reuters: "Now, we are in a situation where every country wants to build its own fab." "We are moving from this kind of global interconnectivity to everywhere perpendicular to the island. "
In Japan, Canon, Tokyo Electronics Co., Ltd. and SCREEN Semiconductor will join the 42 billion yen ($385 million) government-funded program that will cooperate with companies such as TSMC to develop advanced 2-nanometer chips. Japan hopes to ensure that advanced semiconductors can be manufactured in the future, and hopes to build a test line near Tokyo with the help of TSMC.
Even India, which has almost no chip manufacturing infrastructure, also hopes to use its advantages as a global chip company design center and attract factories through new subsidy programs.
At the same time, US lawmakers are preparing to pass the existing Pentagon funding bill and a series of new measures advocated by Chuck Schumer, the majority leader of the Senate, to approve $30 billion or more of chip investment.
Local officials and companies are already competing for subsidies. Intel is committed to Arizona this week, which has a generous state tax cut plan and an established chip manufacturing ecosystem, and analysts expect it to become the main recipient of federal funds.
TSMC also agreed to build a $12 billion fab in Arizona, partly at the request of the Trump administration. Samsung is negotiating with a second plant in Austin, Texas.
The resolution to split may come in the summer. A senior official from the French Ministry of Finance said that German Economy Minister Peter Otmeier and French Foreign Minister Bruno Le Mayer often discuss with Brittany whether it is possible to attract foreign semiconductor giants to improve Europe's advanced chip manufacturing capabilities.
In this week’s announcement, Intel expressed its intention to build in Europe and became the first company among the “big three” chip manufacturers to support the EU’s goal of doubling its share of high-end chip production in the next ten years to reach 20%. Helmut Gassel, head of strategy for German chip manufacturer Infineon, said: "Europe has withdrawn from this race a long time ago and no longer has the necessary local expertise." At the same time, they are frustrated by the slow progress of the EU's existing microelectronics projects. German officials say that 50 companies (all have adopted the niche chip strategy that has been successful in recent decades) have already applied for funding from the program.
The most complicated tension is in Europe, where EU officials are clashed with EU governments over whether they should jump into the expensive competition for advanced computer chip factories,this is a policy advocated by Thierry Breton, the powerful head of the European Union’s internal marketOr double its current strategy to specialize in niche chips.This method is favored by the German government and many companies.
"Every time they meet, they talk about this topic. The official said that the goal is to make a decision by June. He added that the cost of such a project could be as high as $20 billion.
If plans between governments around the world are passed, the semiconductor industry may become more like the 1970s and 1980s, when every country regarded chips as critical to its communications and defense.
However, VLSI's Hutcheson said the risk is that the world will build too much chip manufacturing capacity, causing prices to fall and destroying the entire industry, similar to the collapse of the chip factory from Australia to South Africa in the 1980s.
"From the taxpayer's point of view, this is indeed a problem. Do we really want to launch another cold war. Semiconductor fabs are equivalent to nuclear weapons, but we are wasting all these resources?" Hutchinson said.
