Fitch rating saidIn the face of geopolitical instability and monetary policy intervention, global semiconductor manufacturers face supply chain reallocation, increasing income and cash flow volatility. Due to solid demand in data centers and a severe shortage of automotive chips, more non-consumer chipmakers will continue to face supply constraints in 2023. However, weak sales of consumer electronics, PC and smartphones are putting pressure on chipmakers in the consumer market, leading to reduced capital spending.
The process of regionalization of semiconductor manufacturing in Europe and the United States will initially reduce production efficiency, and this transformation is expected to lead to repeated fluctuations in income and cash flow in the short term compared with the continuous growth enjoyed by the industry over the past few decades.
In the near futureChipmakers are likely to overinvest in capacity during a recession, and slower global economic growth and increased capacity could benefit the semiconductor supply and demand environment in 2023 and sustain overcapacity into 2024-2025. Chipmakers have the flexibility to reduce capital expenditure to meet lower-than-expected demand, but there is a risk of supply shortages when the economy recovers, as factories take a lot of time to prepare for production.
There has been an unusually serious demand glut in semiconductor sales recently.This is because the reopening after the outbreak, consumption recovery, superimposed supply chain constraints, resulting in inventory depletion, and supply concerns further stimulate manufacturers' demand for defensive inventory. In response, chipmakers are investing aggressively to increase capacity based on long-term capital expenditure strategic plans.
On the positive side, Fitch believes that the semiconductor industry is still on track to achieve long-term median average growth driven by technological innovations such as 5G deployment and artificial intelligence and growing demand for chips. this will support revenue growth and long-term credit conditions for chipmakers and should limit the extent and duration of more typical cyclical recessions associated with inventory corrections.
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