Chip makers and other electronics component suppliers have been making huge profits in the last couple of years due to the high demand for their products. Nevertheless, the changing economic environment in the world can negatively affect both the performance of semiconductor suppliers themselves and the participants in their supply chains.
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The slowdown in the Chinese economy and economic fluctuations in the US technology sector will reduce demand for electronics from both consumers and corporate customers, The Wall Street Journal reports. The supply of smartphones and computers has already begun to decline. So, according to the IDC agency, in the first quarter of 2022, shipments fell by 8.9% compared to the first quarter of the previous year, and computer shipments over the same period decreased by 5.1%.
In general, in the world, as pandemic restrictions are lifted, the interest of buyers is shifting from buying goods to services. The situation is exacerbated with the development of the economic crisis and the ongoing outbreaks of COVID-19 in China. In the Celestial Empire in the first quarter, smartphone sales fell by 14.1%.
Across the Pacific, the fall in US technology stocks has reduced demand for IT equipment, and previously wasteful IT businesses are being forced to tighten their belts — for example, server chips for data centers have been an important growth driver for the semiconductor industry for a couple of years, but cost cutting technology companies can make a big difference.
Although the shortage of semiconductors, which lasted more than 18 months, has recently become less acute, in the first three months of this year, the delivery time from the moment the components were ordered increased from 42 to 53 days. At the same time, a decrease in demand for them may adversely affect companies that have accumulated large stocks of electronic components.
East Asia, where most suppliers are located, could be hit hard by falling chip orders. It is known that sanitary restrictions in Shanghai and other Chinese cities in connection with the outbreak of COVID-19 caused a drop in supply and demand not only in mainland China itself, but also in neighboring economies – Taiwan and South Korea.
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According to some reports, South Korean exports increased slightly in May compared to the same month last year, but only because there were fewer working days in May in 2021. According to Morgan Stanley, exports of semiconductors and display panels, on the contrary, fell compared to April. The lifting of sanitary restrictions in Chinese cities may lead to a short-term increase, but major changes are not expected until at least early 2023.
A very difficult situation is emerging. Giants like TSMCare likely to suffer less due to their dominant position in the market, while smaller Asian businesses are likely to face difficult times.
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