Will Excess Semiconductor Inventory Affect Chipmaking Facility Plans?

The tide is turning. Over the last few months, the quick rollover from shortage to excess has swept the industry off its feet. Headlines proclaiming “from shortage to glut” have become more common the bigger the problem grows. With the fragile state of the market over the last few years, it has had plenty of time, whether we know it or not, to bloom.  

And blossom into a tangled weave of prickly vines it has. The issue of excess stock is a complex and logistical headache that comes after years of instability for the weary electronic component industry. Now that excess is growing at a concerning rate companies are doing their best to slow down chip production.  

These decisions come on the eve of construction occurring across the globe, as original component manufacturers (OCMs) such as Intel, TSMC, STMicroelectronics, GlobalFoundries, and more get to work on their new facilities. Governments from India, the U.S., Italy, and more promised incentive plans and subsidies in the billions for chipmakers to manufacture on their shores. Now that excess is becoming an issue, what will happen to these plans?

Over the past few months, NAND and DRAM chip manufacturers have slashed production as these components have been the most affected by excess. Micron cut NAND and DRAM production in the U.S. by 20% and plans to limit the amount of production in 2023. Kioxia in Japan reduced production at its flash memory facilities by 30% starting in early October 2022. Samsung Electronics, SK Hynix, and Yageo in the face of dropping demand have quickly refocused efforts to prevent further contributing to excess stockpiles and revenue losses. Yageo specifically witnessed drops of 50-60% in commodity in Q3 2022.  

Global PC shipments shrank 15% in Q3 2022 and chip making giant TSMC, after coming out of Q3 unscathed from negative revenue growth had 10 of their top clients cancel orders. Manufacturers cited 6 months' worth of stockpiles being the reason for their canceled orders. Everything from global SIM card shipments, down 8.5%, to very chips the world couldn’t find anywhere, semiconductors were down 3%. As a result, OCMs and original equipment manufacturers (OEMs) alike targetted promotional cuts on products to quickly digest inventory.

These promotional cuts, aimed at taking advantage of the holiday season shopping in November and December of 2022, and their effects have yet to be fully realized. They were not the first promotional cuts OCMs and OEMs have done this year. During the U.S. back-to-school season in late August-early September, the sales reflected a disappointing turnout. Nothing substantial enough to make back the overall $240 billion USD lost on the global market for chipmakers.

With excess stacking up and chipmakers posting smaller numbers in revenue than forecast, what’s going to happen to these billion-dollar chipmaking facility plans and incentive programs waiting to be passed?

Chipmaking Facility Plans Will Forge Ahead

One word, nothing.  

Facilities that are already in progress will resume and, more so than that, plenty of countries and companies alike are doubling their investments in already existing projects.

In Arizona, on dusty sand under blue, cloudless skies TSMC’s latest chipmaking facility, known as Fab 21 is wrapping up production. The fabrication plant is a monumental beast that will begin production in early 2024 of 20,000 wafer starts per month for TSMC’s 5nm. Apple has already expressed its excitement about purchasing American-made chips from Fab 21. Now, even with excess concerns and revenue dropping, TSMC has invested an additional $40 million for a second semiconductor plant in Arizona.  

TSMC has come out of the burgeoning excess period better than most. Unlike its competitors, TSMC posted $20.2 billion for Q3 when experts forecasted $19.7. AMD, Texas Instruments, Samsung Electronics, and others saw their forecasted earnings drop to varying degrees. However, despite the low earnings reports, TSMC isn’t the only chipmaker that is increasing investments in facility plans.  

Samsung Electronics, which has been facing the worst of the excess stock challenges, is considering a $200 billion dollar investment in a previously announced $17 billion for 11 plants in Austin, Texas. Advanced Semiconductor Engineering (ASE) recently held a ground-breaking ceremony in Penang, Malaysia for its $300 million USD semiconductor assembly and testing facility. Finisar, a manufacturer that produces specialized lasers in Apple’s facial recognition technology, is considering Sherman, UK for their $3 billion semiconductor plant. GlobalWafers picked the same location for its $5 billion chip-making plant.  

ASML Holding NV, one of the few manufacturers that produce chip-making equipment for advanced semiconductors, said in an interview with Bloomberg that things are positive. Despite the sharp downturn in demand that’s recently besieged the semiconductor industry, AMSL sees the continued development of facilities and expects demand to return to a healthier state after current macro environment uncertainties settle.  

TSMC, while it expressed concerns over clients ordering more than necessary in July and is facing canceled orders, shares the same opinion. The outlook on the future is good. Especially because this period of excess components comes at an opportune time.

The automotive industry is still suffering from shortages and is expected to for some time. As many chipmakers battle excess stock, some of them including Samsung Electronics, Yageo, and SK Hynix, are diverting their attention from consumer electronics to the automotive sector. The automotive sector is experiencing increasing product demand as consumer electronics is watching demand decline. The best way to get rid of excess stock is to sell it.

And right now, there is a hungry audience of buyers in desperate need of component stock. The industry will recover, even during this downturn in demand. To prevent another period of excess and shortage in the future, having these facilities will be pertinent to avoiding such issues. Incentive plans and construction will not suffer from lost revenue during this time.  

To make sure no one comes out the other side worse, selling off excess needs to be done sooner than later to take advantage of the polar extremes affecting the industry. There are areas of overlap where automakers need chips that consumer electronic components manufacturers no longer need. While it is a heavy task to do on your own, selling on a global marketplace puts your stock right in front of those who are looking for it.  

The best way to get started is by visiting Sourcengine’s Sell Your Excess feature.

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