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Chips and Shifts: Semiconductor Industry's Year-in-Review 2023
2023.12.28

Chips and Shifts: Semiconductor Industry's Year-in-Review 2023

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As we bid farewell to 2023, the semiconductor industry has undergone a transformative journey marked by a myriad of challenges and breakthroughs. In this article, we'll delve into the key highlights that defined the landscape of the semiconductor sector throughout the year.


Excess Stock and Sluggish Demand:

The semiconductor industry faced a double challenge in 2023, grappling with both sluggish demand and an alarming excess stock issue. The diminished demand for products like smartphones and laptops, particularly as pandemic purchases saturated the market, intensified the situation.

Chipmaker, Onsemi, predicted a lacklustre fourth quarter, coupled with a reduction in its workforce by about 900 jobs. [1] Concerns grew as this move hinted at the impact of weak electric vehicle (EV) demand on chip orders from the automotive sector, echoing the industry-wide repercussions of subdued EV demand that led to companies reassessing production and workforce strategies. Micron Technology cost-cutting initiatives, which encompassed a 10 percent reduction in workforce and a deceleration in investments for new production in January. [2] This struggle was widespread, as companies adjusted their supply to align with diminished demand, showcasing the broader market impact of prevailing conditions.

The memory and memory protection unit (MPU) market segments bore the brunt of this decline. The memory market contracted to just 44% of its size in the first quarter of 2023. Similarly, the MPU market comprised only 65% of the total market, resulting in a substantial 19% overall decline in the first quarter of 2023. [3] 

Despite the rocky start, the semiconductor industry has exhibited signs of a gradual recovery. In September 2023, global semiconductor sales increased by 1.9% compared to August 2023. Although down 4.5% from September 2022, the third quarter of 2023 witnessed a notable 6.3% increase compared to the previous quarter. [4] This marked the seventh consecutive month-to-month increase in global semiconductor sales, indicating a positive shift in the industry's trajectory in the latter part of the year. John Neuffer, Semiconductor Industry Association (SIA) president and CEO, remains optimistic about the industry's long-term outlook, emphasising its crucial role in powering essential products and driving transformative technologies. 


Global Race for Semiconductor Resilience:

Countries across Asia, including India, Japan, and Vietnam, engaged in a race to build semiconductor resilience. Recognising the critical role of semiconductors in various industries, these nations intensified efforts to establish semiconductor manufacturing hubs, foster research collaborations and attract investments. 

Japan has taken bold steps to revitalise its semiconductor industry, allocating a staggering JPY 2 trillion (USD 13 billion) in subsidies. [5] This initiative, led by the Ministry of Economy, Trade and Industry, aims to propel Japan back into the forefront of the semiconductor domain. As part of this comprehensive plan, the ministry is actively pursuing an additional JPY 1.85 trillion (USD16.8 billion) in an extra budget, supplementing existing funds earmarked for chip-related subsidies. [6] The focus is on boosting domestic chip production capacity, securing vital semiconductor supply chains, and attracting substantial investments into cutting-edge semiconductor technologies.

Meanwhile, Vietnam is solidifying its position as an emerging chip manufacturing powerhouse. Following U.S. President Joe Biden's two-day visit in September, a bilateral agreement was signed, aiming to expand the capacity of Vietnam's semiconductor ecosystem. His delegation comprised several prominent American technology giants, such as Amkor, Intel, and GlobalFoundries, seeking to explore business opportunities in Vietnam. [7] As part of this collaboration, the U.S. government is providing USD 2 million in seed funding to launch comprehensive workforce development initiatives in Vietnam. The focus is on developing hands-on teaching labs and training courses for semiconductor assembly, testing, and packaging. The Vietnamese government has also announced plans to train between 50,000 and 100,000 high-skilled workers between 2025-2030. [8]

With foreign investments pouring into India, the nation is set to establish itself as a global "chip-making superpower. Mark Rutte, the Prime Minister of the Netherlands, has revealed that his government is exploring potential collaboration with the Indian and Karnataka governments to boost the semiconductor industry in Bengaluru, the capital city of Karnataka. Several foreign investments have been infused to bolster India's semiconductor sector growth. Micron invested approximately INR 68.1 billion (USD 1.1 billion), and Foxconn announced an investment of around INR 16.7 billion (USD 270 million) in the country. Additionally, Bengaluru secured a significant investment of INR 3 billion (USD 400 million) from the U.S.-based Advanced Micro Devices (AMD) to establish a research facility focused on artificial intelligence and machine learning. [9]


Labour Shortage:

The shortage in the labour force within the semiconductor industry has been exacerbated by various factors, including delayed mass production schedules. For instance, Taiwan Semiconductor Manufacturing Co. (TSMC) announced a setback in its Arizona plant, pushing back the commencement of mass production to 2025 due to workforce shortages. [10]

To put this into perspective, the Korea Semiconductor Industry Association highlighted that as of 2022, there were approximately 179,000 workers in the chip industry. Recognising the need for a substantial increase to maintain competitiveness, the association projects that nearly doubling the workforce by adding approximately 125,000 jobs by 2030 is imperative. [11] 

This global labour crunch is not unique to a specific region. The Semiconductor Industry Association (SIA), in collaboration with Oxford Economics, conducted a study forecasting a significant shortage of skilled workers in the semiconductor industry by 2030. Their predictions indicate a projected shortfall of 67,000 workers, translating to a potential 58% vacancy rate for new manufacturing and design positions in the semiconductor sector. This shortage emphasises the urgency for innovative solutions and strategic workforce planning within the semiconductor landscape. [12]


China's Manufacturing Advancements:

With the U.S. government implementing a chip ban, China is positioning itself for self-sustainability in the semiconductor space. To achieve this goal, China has been making substantial investments in new chip fabs and collaborating with domestic manufacturers to ramp up component production. For instance, Chinese pure-play foundry Semiconductor Manufacturing International (SMIC) is anticipated to inaugurate its most extensive 12-inch (300mm) wafer manufacturing facility in Lingang, Shanghai as early as the first quarter of 2024. [13]

In August 2023, Huawei, quietly unveiled its Mate 60 series phone, featuring the Kirin 9000S chip (formerly known as Charlotte). Despite facing obstacles due to global tensions and sanctions, the Kirin 9000S demonstrated impressive performance, comparable to chips from major players like Qualcomm. The Mate 60 quickly became a bestseller in China, marking the triumphant return of Huawei chips and garnering enthusiastic support from nationalists and tech enthusiasts alike.

However, in the later part of the year, developments suggest a potential easing of global tensions. Samsung Electronics and SK Hynix have secured an indefinite waiver for semiconductor equipment supplies to their Chinese factories. The U.S. government has granted these South Korean companies permission to acquire U.S.-made chipmaking devices to their factories in China without requiring separate U.S. approvals. [14] Following an alleged security review failure earlier in the year, China has agreed to allow Micron to resume chip sales to its companies. China's strategic push to fortify its chip industry for self-sufficiency and resilience is set to propel more technological breakthroughs in 2024. 


Will the semiconductor industry see a rebound in 2024?

As we wrap up the transformative journey of the semiconductor industry in 2023, the outlook for 2024 appears promising. Based on IDC's latest research, the anticipated resurgence in 2024 is fueled by a surging global demand for artificial intelligence (AI) and high-performance computing (HPC). This growth, coupled with stabilised demand for smartphones, laptops, infrastructure, and resilient automotive expansion, is expected to contribute to a 20% annual increase. [15] In view of these market dynamics, independent electronic component distributors will be playing a crucial role. Their adaptability, extensive networks, and efficient sourcing of critical components will be instrumental in maintaining a reliable supply chain for semiconductor manufacturers. As the industry prepares for the challenges and opportunities ahead, the collaborative efforts, investments, and innovations witnessed in 2023 set the stage for a dynamic and resilient semiconductor landscape in the coming year.

become more critical than ever in the era of advanced packaging.


References:

[1] Onsemi cuts jobs, sees weak 4th quarter on slowing EV demand, Reuters, 2023

[2] Micron sales forecast spurs hope worst of chip slump is over, The Straits Times, 2023

[3] Semiconductor market continues record fall, Digitimes Asia, 2023

[4] Global Semiconductor Sales Increase 1.9% Month-to-Month in September, SIA, 2023

[5] Japan Prepares $13 Billion to Support Country’s Chip Sector, Bloomberg, 2023

[6] Japan cabinet approves 13.2tn yen extra budget to fight inflation, Nikkei Asia, 2023

[7] Exclusive: Top US chipmakers, tech firms to attend Vietnam meeting as Biden visits, Reuters, 2023

[8] Vietnam reiterates request for US aid for semiconductor industry, The Investor Wafie Magazine, 2023

[9] India Vies to Become Semiconductor 'Superpower' as FDI Pours In, Asia Pacific, 2023

[10] TSMC delays U.S. chip plant start to 2025 due to labor shortages, Nikkei Asia, 2023

[11] Chipmakers reach out to undergraduates to tackle talent shortage, The Korean Herald, 2023

[12] US chip industry will be short of 67,000 workers by 2030, says industry group, Verdict, 2023

[13] SMIC soon to operate new 12-inch fab in Shanghai, Digitimes Asia, 2023

[14] What’s behind Samsung, SK Hynix chip war waivers?, Asia Times, 2023

[15] Global chip market to recover in 2024 with 20% annual growth, Auto, 2023

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