Dip in the Chip Sector Due to Falling Consumer Spending

This article was last updated on July 21, 2023

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Introduction

The chip industry has experienced a decline in sales and profits for the third consecutive quarter. Taiwanese chip manufacturer TSMC attributes this decline to global economic uncertainty caused by factors such as high inflation and energy prices.

Decrease in Orders

Sales at ASML, a chip machine maker, are still rising, and the company even raised its full-year forecast. However, there has been a decrease in the number of orders for the third consecutive quarter. This indicates that customers like TSMC are more cautious in their purchasing decisions.

Declining Demand

The decline in chip sales can be attributed to the decreasing demand from manufacturers of laptops and smartphones. Research by IDC shows that smartphone sales have fallen by nearly 15% for seven consecutive quarters, while computer sales have declined by almost 26%.

Expectations for Growth

Despite the current downturn, industry experts believe that the chip market will experience growth next year. Major fluctuations in the chip market, from shortages to surpluses, have become less frequent. The expectation for long-term demand for chips remains high due to their increasing use in various industries, including the energy transition and artificial intelligence.

Shortage of Knowledge Workers

TSMC faces another challenge related to the delayed opening of a factory in the US due to a lack of knowledge workers. ASML also highlighted this problem, stating that the knowledge required for chip manufacturing is concentrated in a few regions around the world, such as Taiwan, South Korea, and China.

Expansion Plans in Europe

With chip factories being built globally, Intel is setting up a factory in Germany, and TSMC is also considering establishing a factory in Europe, possibly in Germany. However, negotiations with the German government regarding their contribution to the project are still ongoing.

The construction of these new factories is good news for ASML, as CEO Peter Wennink expects high demand for their machines to arise from 2025 when a new wave of factories enters the market. Planning and anticipating future demand is crucial for industry leaders to avoid shortages or surpluses.

Possible Future Shortages

If demand for chips picks up again in 2024 before many of the planned factories are completed, there is a possibility of facing shortages once more. This highlights the importance of strategic planning and coordination within the chip industry to meet future demands.

Conclusion

While the chip sector is currently facing a downturn due to falling consumer spending and declining demand for electronic devices, industry experts remain optimistic about future growth. The widespread use of chips in various industries and the potential for increased demand in the coming years indicate a positive outlook for the chip market.