Excess inventory becomes a risk with no brake on semiconductor investment

Bryan Chuang, Taipei, DIGITIMES Asia 0


After the successive introduction of chip acts in the United States, the European Union, and Japan, a global trend of building chip fabs has emerged.

Even India's TATA Group is planning to build semiconductor fabs. Other countries such as Singapore, Malaysia, and South Korea also have expansion plans to support the semiconductor manufacturing industry, which seems to have become an important policy for many national governments.

As for Taiwan's expansion plans, regardless of mature or advanced processes, after a slowdown in 2023, is it possible to continue expanding investments in the latter half of 2024? There are concerns in the market about potential semiconductor factory overcapacity and increasing chip inventories.

According to DIGITIMES Research, the demand for wafer foundry services in 2024 is unstable, and major wafer foundries have adjusted their capital expenditures downward to regulate the pace of adding new production capacity, with new capacity expansion plans being more conservative than in 2023.

From TSMC's April 2024 earnings conference, some signals have been detected by outsiders. TSMC's capital expenditure remains unchanged and the overall outlook for the wafer foundry industry has been downgraded. DIGITIMES Research estimates that the combined capital expenditure of the top five wafer foundry operators will decrease by about 2% in 2024, to US$55 billion.

The Global Semiconductor Industry Outlook 2024 conducted by KPMG and the Global Semiconductor Alliance (GSA) shows that the global economy is impacted by high inflation and interest rates, resulting in weak economic performance, with no significant recovery in end-consumer demand.

More than half (51%) of senior executives in the semiconductor industry anticipate slowing capital expenditures and deferring investment in research and development in 2024. DIGITIMES Research estimates that chip demand may only stabilize in the latter half of 2024.

Regarding the greatest challenges facing the semiconductor industry in the next three years, the issue of talent shortage is undoubtedly the top concern, while semiconductor overcapacity ranks fourth. This indicates that senior semiconductor industry executives still have concerns about excessive investment and capacity expansion.

As perceptions of excess inventory in the supply chain increase year by year, only 8% of respondents in KPMG and GSA's survey believe there will be supply chain shortages in the next four years, with 42% even believing that excess inventory has already occurred.

However, 19% believe there won't be excess inventory because demand for chips in electric vehicles, AI, and emerging applications continues to increase.

Surprisingly, the metaverse is rapidly losing momentum. Applications that could drive semiconductor revenue growth in 2024 might not include the metaverse, which is even less promising than wired communications. The top three applications, in order, are electric vehicles, AI, and the Internet of Things.