Uncertainty looming over chip market

According to a report by Deloitte, revenue for the global semiconductor chip industry is forecast to grow 10 percent in 2022 to reach over $600 billion. Does uncertainty of the demand, which has engulfed the chip production impacted by the market conditions augur well for a large number of economies?

Chips act as the brains of computers and are needed in just about every device with an ON-OFF switch. The mapping of the requirements and making it meet the production lifecycle of individual companies and a well calibrated global supply chain is not an easy job. 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 percent.

Pandemic laid out bare the chinks in the chip industry armour. It showed how far the world can be impacted by this industry. As the learning was being digested by countries, economies and regions, lots of policy and geo-strategic conditions, which were outside the control of the industry, had started impacting them in a big way. First the Russia – Ukraine War, then the US restrictions and the war clouds over Taiwan, in all the world has not been to recover from the pandemic before the multiple factors have again started to hit at its underbelly. The seamless demand-supply production and enmeshed supply chain, seems to have become a thing of the past.

Few months ago, the chipmakers seemed to be on the top of the world. In July, the US passed a $52 billion subsidy package that included grants to build new chip factories. Betting on federal subsidies and growing need of their products US chipmakers such as Intel, Micron Technology, Texas instruments and GlobalFoundries pledged huge expansions in domestic manufacturing.

But the question is how long would the current slowdown last. Hypergrowth to pause has been the comment of the CEO of Arm. With regards to chips pertaining to automobiles, the availability is much better today. Going forward, Prices of smartphones and computers are likely to fall as chip supplies grow and the prices for those two types of memory chips are likely to plummet. Prices still remain high for many types of semiconductors, way above pre-pandemic pricing. It is being reported by the semiconductor companies that they witnessed a sharp drop in revenue. The China restrictions are negatively impacting US companies too. Nvidia is already feeling the heat. Is it one of the boom and bust cycles or something worse, only time will tell.