Too many chips, too little demand? First fall in global chip sales since 2020

• Global chip sales in third quarter 3% lower than 3Q21 and 6.3% less than 2Q22.
• Inventory remains elevated and players including Samsung warn of further slump in demand.

Demand for semiconductors at the peak of the pandemic was off the charts, and that lasted for quite a while. Then briefly, there was a mismatch between demand and supply, pushing lead times even longer. Lately however, supplies of some semiconductors started piling up, and what could spell good news for consumers spelled the opposite for industry executives. To make matters worse, the new US restrictions against China have only created more obstacles.

Semiconductor shares have been tumbling amid a series of corporate warnings about slowing demand for chips used in an array of electronic devices. Last month, Korean chipmakers manufactured 3.5% fewer than a year earlier, deteriorating from a 0.1% fall in August, the country’s national statistics office said separately on Monday. Then when sales data was released, the industry, for the first time in two years, witnessed a fall in global chip sales.

The Semiconductor Industry Association (SIA) last Friday announced global chip sales for the month of September 2022, and they were down 0.5% compared to August 2022 and 3% less than September 2021. “Worldwide sales of semiconductors totaled US$141 billion during the third quarter of 2022, a decrease of 3% compared to the third quarter of 2021 and 6.3% less than the second quarter of 2022,” the statement reads.

“Following strong growth through the first half of 2022, global semiconductor sales have slowed in recent months, decreasing in September on a year-to-year basis for the first time since January 2020 amid a range of macroeconomic headwinds,” SIA president and CEO John Neuffer said. Considering how semiconductors represent the biggest source of income for the Korean economy, the slowdown last quarter was a reflection of waning consumer demand for the nation’s technology exports. 

Separately in Taiwan, the world’s largest contract chipmaker, TSMC, is also seeing reduced orders from four of its largest customers, reflecting slowing global demand. JPMorgan Chase said in a report in early September that AMD, Nvidia, Qualcomm and MediaTek slashed chip orders with TSMC.

To top it off, while reporting a record quarterly profit surge for the July-to-September quarter two weeks ago, TSMC warned of a likely decline for the entire semiconductor industry in 2023 and cut its capital spending forecast by 10% in 2022. TSMC is not alone; other semiconductor companies which had been looking forward to immense demand and opportunity, are suddenly seen grappling with big challenges.

AMD lowered its revenue forecast recently, citing significant weakening in the PC market. Concurrently, Intel, Nvidia and Micron Technology all issued subdued outlooks. Maintaining their optimism, SIA’s Neuffer however reckon that the long-term market outlook remains strong, as semiconductors continue to become a larger and more important part of our digital economy.

To reiterate Gartner, although chip shortages are abating, the global semiconductor market is entering a period of weakness, which will persist through 2023 when semiconductor revenue is projected to decline 2.5%. “We are already seeing weakness in semiconductor end markets, especially those exposed to consumer spending. Rising inflation, taxes and interest rates, together with higher energy and fuel costs, are putting pressure on consumer disposable income. This is affecting spending on electronic products such as PCs and smartphones,” said the company’s Richard Gordon.