World chip sales growth has decelerated for 2Qs while the long term growth is strong

World chip sales growth has decelerated for 6 straight months — yet another sign the global economy is straining under the weight of rising interest rates and mounting geopolitical risks. The 3-month moving average in chip sales has correlated with the global economy’s performance in recent decades. The latest weakness comes as concern about a worldwide recession has prompted chipmakers like Samsung Electronics to consider winding back investment plans. Semiconductors are key components in a world that’s increasingly reliant on digital products and services, particularly during the pandemic when a lot of work and schooling was conducted remotely. Chip sales started to cool as central banks began scrambling to raise interest rates to combat spiraling inflation and Russia’s war on Ukraine and prolonged Covid lockdowns in China prompted a rapid reversal in the international outlook. A Bloomberg Economics global tracker shows the prospects for the world economy have deteriorated rapidly in 2022, coinciding with chip sales beginning to slow. (CN Beta, Bloomberg)

The shortages of computer chips that forced global automakers to scrap production plans for millions of cars over the past two years are easing — at a new and permanent cost to the car companies. C.C. Wei, chief executive of Taiwan Semiconductor Manufacturing Co (TSMC), has said he had never had an auto industry executive call him — until the shortage was desperate. He has revealed that one automaker has called to urgently request 25 wafers who is used to fielding orders for 25,000 wafers. He has replied no wonder they cannot get support. Thomas Caulfield, GlobalFoundries chief executive, said the auto industry understands it can no longer leave the risk of building multibillion-dollar chip factories to chipmakers.(Laoyaoba, Reuters, US News, UDN, CNYES)

The IC market recorded its first-ever June sequential sales decline in 2022, based on data from WEMA, SIA, and WSTS dating back to 1976. Typically, high single-digit or double-digit sales gains have been the pattern for June IC sales. Even in its previously weakest year (1985), June IC sales increased 1%. Never, until 2022, have June IC sales declined. First, June is a quarter-ending five week month and that alone has historically been enough to generate a sales uptick compared to the four-week month of May. Second, June is normally one of the strongest months of the year for IC sales since OEMs are buying chips to build into their new systems in time for back-to-school and end-of-year holiday sales. The biggest contributor to June’s total IC market decline was the sudden and dramatic drop in memory IC sales. A dramatic revenue downturn is not readily evident in the 2Q22 financial results from Samsung, SK Hynix, and Micron since June’s decline offset gains made in Apr and May 2022. However, Micron is forecasting a -17% sales drop for its fiscal 4Q22 (ending in August). Samsung and SK Hynix do not provide next-quarter sales guidance, but it is reasonable to presume that their 3Q22 outlooks are somewhat similar to what Micron has forecast. (Laoyaoba, IC Insights)

Technological upgrades and product innovations are the direct driving factors for the increase in semiconductor demand. Driven by strong demand in emerging application fields such as 5G, Internet of Things, smart cars, cloud computing, big data, medical electronics and security electronics, semiconductor industry Long-term demand is optimistic, SUMCO expects the compound growth rate of global 12” wafer demand to reach 10.2% in 2021–2025. (Orient Securities report)

SMIC, a leading foundry manufacturer in China, is currently constructing the SMIC Jingcheng project in 2021 and is expected to gradually enter the equipment procurement stage in 2022. SMIC Shenzhen and Lingang factories also started construction in 2022, with a total investment of over 1,000B for the 3 production lines. The domestic NAND storage leader Yangtze Memory and DRAM leader Hefei Changxin are in the second phase of plant construction. The total investment in the third phase of the two manufacturers exceeds CNY300B, and the demand for equipment will continue to be released. (Orient Securities report)