In 2021, the global chip supply shortage has revolved around the semiconductor industry for a whole year, resulting in soaring demand for chips. The chain reaction of price increases and plant expansion brought about by the imbalance between supply and demand is expected to continue for some time. However, the narrative of "oversupply" is beginning to sweep the semiconductor industry. Is this the result of the expansion and production increase of major manufacturers, or is it a single perspective of the end market?

2022 Q1 revenue of Semiconductor manufacturers growth

In the first-quarter revenue of 2022 announced by various semiconductor manufacturers recently, Infineon, STMicroelectronics, and Onsemi exceeded market expectations and reached new highs.

Infineon Tops 3.3 Billion Euros in Revenue

Benefiting from the global shortage of automotive power semiconductors, Infineon's Q1 performance in 2022 was higher than expected, with revenue of 3.3 billion euros, an annual increase of 22%, and a net profit of 469 million euros.

In February this year, Infineon is set to invest 2 billion euros in a new front-end fab in Malaysia to enhance its manufacturing capabilities in the field of broadband (SiC and GaN) semiconductors. At the same time as the announcement of Q1 results, it also raised its revenue forecast for the next fiscal quarter and the entire fiscal year. Full-year 2022 revenue is expected to be 13.5 billion euros, higher than the original forecast of 500 million euros.

STMicroelectronics net revenue of $3.55 billion

In the first quarter of 2022, ST's net revenue was US$3.55 billion, an annual increase of 17.6%; a gross profit margin of 46.7%; with a net profit of US$747 million, an annual increase of 105.1%.

Source: STMicroelectronics

Jean-Marc Chery, CEO of STMicroelectronics, said that the growth momentum of Q1 revenue came from strong demand for embedded microcontrollers, which offset the suspension of production cuts at some Shenzhen factories due to epidemic prevention measures. According to the sales and operation plan, ST's production capacity has been fully saturated this year, and the capacity utilization rate has exceeded 90%. Another driver of the doubling of net profit is their two major customers, Apple and Tesla.

Onsemi's performance hits a new record, with revenue exceeding $1.9 billion

In the first quarter of 2022, Onsemi's revenue was US$19.45, a year-on-year increase of 31%; net profit was US$530 million, a year-on-year increase of 24.7%. Among them, the revenue of the Power Solutions Department was US$987 million, an annual increase of 32%; the revenue of the Advanced Solutions Department was US$689 million, an annual increase of 30%, and the revenue of the Intelligent Sensing Department was US$269 million, an annual increase of 32%.

Onsemi expects Q2 revenue to be in the range of US$1.965 billion to US$2.065 billion under the GAAP standard, and the gross profit margin is in the range of 48.5% to 50.5%.

Source: onsemi

Hassane El-Khoury, President and CEO of Onsemi, said, "With a highly differentiated portfolio of smart power and smart sensing products, strong visibility from long-term supply agreements, and solutions to the electrification of automotive functions, advanced driver assistance systems (ADAS), energy infrastructure and factory automation, and we are well-positioned to maintain our momentum.”

The Focus is Turning into a Market Demand from Chip Supply

What worries the semiconductor industry is that supply shortages are turning into market demand issues. Chip shortages have led to expected lower production capacity in the auto industry, but falling demand for consumer electronics threatens to lead to a supply glut.

According to consulting firm IDC, in the first quarter of 2022, global smartphone sales reached 314 million units, an annual decrease of 9%. According to Canalys data, global PC (tablet + laptop + desktop) sales in the first quarter of 2022 fell by 3% year-on-year to 118.1 million units. According to data from AVC Revo, global TV shipments in the first quarter of 2022 were 46.4 million units, a year-on-year decrease of 6.1%, and the third consecutive quarterly decline in shipments.

At present, the shortage of supply in the terminal market has been gradually filled. The supply side is rushing to restock in response to a rebound in demand in 2021. Inventory levels in most industries are now recovering or even exceeding that of pre-crisis averages. From this perspective, the replenishment of the supply side and the fall of the demand side will lead to a "Bullwhip Effect". But will this weakening of demand lead to a surplus of chips?

Source: Internet

In fact, although the market for traditional consumer electronics (mobile phones, computers, etc.) is weak, the opposite is true in the fields of automotive electronics, the Internet of Things, and industrial control. ASML chief executive Peter Wennink said, "Even with weaker demand, there is a large gap between demand and our capacity."

Global semiconductor equipment sales hit a new high in 2021, reaching $103 billion. But the lead time of semiconductor equipment has been extended to a year and a half or even more. Supply constraints are challenging fab tool makers, with shortages of some critical chips and components disrupting fab tool makers' capacity.

Supply chain experts estimate that it will take years to return to pre-COVID-19 output norms, and labor shortages are continuing to exacerbate the recovery, even as the COVID-19 is being contained around the world to lessen the adverse impact on them.

Wafer foundries increase prices and expand production

TSMC, Samsung, and Intel have recently expanded their factories around the world to increase production. It is predicted that there will be a slowdown in production capacity in advanced manufacturing processes in the future.

Last year's surge in consumer electronics demand drove a surge in chip demand, and foundry prices continued to rise. However, the demand for consumer electronics is sluggish this year, and fabs represented by TSMC and Samsung have set off a new round of price increases.

As the prices of materials such as silicon wafers, photoresists, and electronic special gases continue to rise, and the demand for automotive electronics and industrial electronics is still strong. Fabs have issued notices of price increases. TSMC's mature process prices will increase by 8-9%, and advanced processes will increase by 4-5%. All of Samsung's process nodes are raised online by 15-20%.

As demand shrinks and production capacity increases, the gaps between supply and demand will tend to ease. Worries about an oversupply of chips are nothing more than a reminder to the semiconductor industry. To avoid getting lost in this game of constant supply and demand imbalances.