Why is global semiconductor industry investment cooling down? United States | Semiconductors | Global
According to the recent report of Nihon Keizai Shimbun, investment in semiconductor related products is stepping on the "hard brake". The investment amount of 10 large semiconductor companies worldwide in the fiscal year 2023 is expected to decrease by 16% compared to the previous year, to $122 billion, with a four-year transition from growth to decline, and the decline is the largest in 10 years. Recently, the global semiconductor industry has faced multiple challenges such as supply and demand imbalance, price decline, and reduced investment, and the development of the industry seems to be facing a cooling trend.
Reduced investment and sluggish market
The Nihon Keizai Shimbun reported that the investment plans of 10 large semiconductor enterprises in the United States, Europe, South Korea, Taiwan, China, and Japan showed that the investment in memory chips used in smartphones and computers dropped 44% year on year, and the investment in logic chips used as the "brain" of personal computers and data centers also dropped 14%. Intel CEO Patrick Gersinger recently stated at the earnings briefing that due to the uncertain market outlook in some countries, investments in the semiconductor industry have to be reduced.
The decline in investment in the semiconductor industry is a manifestation of the current cooling trend in the semiconductor industry. The 2022 Global Semiconductor Industry Outlook jointly released by the Global Semiconductor Alliance and KPMG shows that in 2021, the semiconductor industry's revenue reached a record high of $556 billion. However, the semiconductor industry has shifted from oversupply to oversupply. According to the website of the US Consumer News and Business Channel, during the most serious period of the COVID-19, semiconductor shortages affected various products from cars to game controllers. Enterprises hoarded chips to increase inventory. After the epidemic, the economy slowed down and the semiconductor industry experienced oversupply.
Affected by supply and demand, the overall prices of semiconductor products have fallen into a slump. According to the website of Consumer News and Business Channel in the United States, the quotes for DRAM and NAND chips both fell by more than 40% year-on-year in August. "Due to the insufficient reduction in production by various enterprises, prices are still under pressure. It is expected that demand recovery and a real increase in prices will not occur until next year," said Toshihiro Toshio, a researcher at the Investigation Department of the Japan Institute of Comprehensive Studies
With the sluggish semiconductor market, the trend of layoffs in the semiconductor related industry is intensifying. According to Bloomberg, one of the three major chip manufacturing equipment suppliers in the United States, Pan Forest Group, plans to lay off about 7% of its employees in response to the sharp decline in demand for semiconductor equipment, in order to reduce expenses in the constantly declining market. According to Taiwan media reports, Qualcomm in Taiwan, China, China, has cut about 300 jobs this year in order to cut costs because of the downturn in the smartphone market using semiconductor products, and its performance continues to decline.
"Decoupling and breaking the chain", damaging the industry
Professor Liu Hongsong from the School of International and Public Affairs at Shanghai Jiao Tong University analyzed in an interview with this newspaper that the semiconductor industry has obvious globalization characteristics, with the industrial chain involving multiple links such as semiconductor equipment, materials, design, and chip manufacturing. Upstream and downstream enterprises with long supply chains and competitive advantages are distributed in different countries around the world. For example, Japanese related enterprises mainly focus on semiconductor equipment and material production, while American related enterprises have advantages in semiconductor design and high-end chip research and development. It is precisely due to the globalization characteristics of the semiconductor industry that the overall cooling trend of the semiconductor industry is closely related to the global economic downturn and the fragmentation of the industrial chain.
"Affected by the global economic downturn, some countries have experienced sluggish economic recovery, slow recovery of market demand, and weak demand for semiconductor related products." Liu Hongsong pointed out that semiconductor products have a wide range of applications, and related products such as electric vehicles, communication equipment, and smart homes cannot do without semiconductor components. The weakening of demand in related industries directly affects the growth momentum of the semiconductor industry, leading to a weak trend in semiconductor production, investment, and employment.
"In the short term, the cooling of investment in the semiconductor industry reflects the current oversupply of semiconductor products, and the reduction of production and investment behavior by related enterprises is a response to market regulation mechanisms and a normal cyclical phenomenon." According to Cai Cuihong, a professor at the American Research Center of Fudan University, in an interview with this newspaper, in addition to market regulation, the development difficulties faced by the semiconductor industry have deep reasons - some countries politicize and generalize the semiconductor industry in order to seek so-called "national security", deliberately interfering, restricting, and destroying the original global semiconductor industry chain formed based on market laws, which has a serious negative impact on the sustainable development of the semiconductor industry.
The Nihon Keizai Shimbun reported and analyzed that the biggest drop in semiconductor equipment investment in 10 years was mainly due to the increasingly fierce scientific and technological competition in recent years.
In recent years, the United States has successively introduced the Innovation and Competition Act, the 2022 American Competition Act, the Chip and Science Act, and related administrative orders, hoping to promote the "return" of semiconductor industries such as chip manufacturing to the country through huge industry subsidies and "hegemonic clauses" restricting exports and investments. According to a report on the website of The Wall Street Journal, US President Biden issued an executive order on August 9th, prohibiting Americans from investing in Chinese companies that develop advanced semiconductors and quantum computers starting from 2024. This administrative order prohibits new private equity, venture capital, and joint venture investments in China's advanced semiconductors and quantum computers.
At the same time, the United States is attempting to create a "small circle" in the semiconductor industry.In addition, according to the Yomiuri Shimbun in Japan, in August, Japan, the United States, and South Korea reached an agreement at the Camp David summit to establish a mechanism aimed at "reducing the risk of semiconductor and critical mineral supply chain disruptions through information exchange.". The Japanese government agreed to establish a similar mechanism with the European Union in July. In May this year, the US EU Trade and Technology Commission stated at its fourth ministerial meeting that "strong transatlantic cooperation will be carried out in emerging technologies to promote joint leadership between the US and the EU."
"In recent years, the United States has been increasing its efforts to" decouple "the semiconductor industry. Japan, South Korea, the Netherlands and Taiwan, China, China and other countries and regions that have mastered global semiconductor competitive enterprises, have been under pressure from the United States to reduce cooperation with China's semiconductor industry in investment, production and other aspects, which directly affects the normal development of the global semiconductor industry." Cai Cuihong said.
Adhere to rules and promote cooperation
"The United States and other relevant countries are continuously strengthening their so-called 'supply chain resilience', which is actually harming the economic interests of relevant countries and severely impacting the global semiconductor supply chain," Liu Hongsong said.
The Semiconductor Industry Association of America recently issued a statement regarding the US government's restrictions on semiconductors, stating that the White House's repeated adoption of overly broad, vague, and sometimes unilateral restrictive measures may weaken the competitiveness of the US semiconductor industry, disrupt the supply chain, and trigger significant market uncertainty.
As an important ally of the United States and a major global semiconductor producer, South Korean semiconductor related enterprises have suffered serious impacts. According to a report by Asia Economic Daily in South Korea, the United States has restricted the export of semiconductor manufacturing equipment to China, which has put the South Korean semiconductor industry at risk. Large South Korean semiconductor companies such as Samsung Electronics and SK Hynix may suffer huge losses as a result.
Cai Cuihong analyzed that trade restrictions and export controls between countries related to the semiconductor industry chain have led to increased scrutiny of investment in the chip industry, increased compliance costs, complex fundraising procedures, and increased market instability, thereby affecting the global layout and investment plans of semiconductor enterprises, further undermining the stability of the global semiconductor industry chain and supply chain, and damaging the endogenous driving force of industry development.
According to a report by the Financial Times, South Korean congressman and former executive manager of Samsung, Liang Xiangzi, said, "The United States should abandon its current approach of attempting to 'achieve a certain goal by shaking and disrupting the global semiconductor supply chain' and start considering global common interests."
"At the technical level, governments and enterprises of various countries can jointly increase investment, support technology research and innovation, promote technological progress in the semiconductor industry, focus on systematic talent cultivation, strengthen education in science, technology, engineering, and mathematics, and cultivate more professionals in the semiconductor field. At the international cooperation level, relevant countries should abide by relevant rules, avoid using national security as a pretext to promote the safety of the semiconductor industry, artificially disrupt the global semiconductor industry chain, reduce geopolitical risks through mutual cooperation, promote knowledge sharing and technology exchange." Cai Cuihong said.
Liu Hongsong pointed out, "In the long run, although the semiconductor industry is currently undergoing a tortuous stage of development, as the underlying support of the fourth industrial revolution, the semiconductor industry still represents an important direction for global economic growth and is one of the core industries for future economic development. It can be predicted that the demand for the semiconductor industry will continue to rise, and the trend of highly specialized and globalized industries is unstoppable."
