Australia
China
India
Indonesia
Japan
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Philippines
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Asia has been playing a pivotal role in the global semiconductor industrial chain. The year-long boom in global semiconductor demand has supported industry players in the region, pushing growth high.
While priliminary estimates forecast all geographical regions to grow in double digits, the Asia Pacific (ex-Japan) region is leading the way in 2021, with an estimated 26.7% year-to-year increase, data by World Semiconductor Trade Statistics (WSTS)’s Semiconductor Market Forecast showed. Japan is estimated with a 19.5% growth year-over-year.
“Semiconductor manufacturers in Emerging Markets, particularly Asian economies like China, Taiwan and South Korea, are benefiting from cyclical pricing power amid the global chip shortage,” according to Todd McClone, Partner & Portfolio Manager at William Blair & Company.
The overall semiconductor market revenue increased by 25.1% in 2021 to total $583.5 bn, crossing the $500 bn threshold for the first time, according to a preliminary report by Gartner.
Semiconductor manufacturing: Asia’s leading the way
According to the Semiconductor Industry Association (SIA) report, almost 75% of the global installed capacity is concentrated in East Asia (Japan, South Korea and Taiwan) and mainland China. As per the report, manufacturing economics are significantly more favourable in Asia, with access to higher government investment incentives and lower factor costs.
South Korea, for example, plans to spend around $450 bn to establish the world’s largest chipmaking base over the next decade. The country is home to two of the world’s largest semiconductor vendors, Samsung Electronics and SK Hynix.
Similar is the case for China, where the government has also committed $150 bn till 2030, to build a thriving domestic integrated circuit (IC) ecosystem.
To revive domestic chipmaking, Japan has devised plans to provide continuous support to the chip sector over multiple fiscal years, through subsidies, financial support for purposes such as building factories. Taiwan’s TSMC – which last year announced to build a plant in Japan’s city of Kumamoto – could be the first subsidy recipient under the framework.
At the same time, industry behemoths such as TSMC, Samsung, SMIC, Renesas have announced record increase in revenues in 2021, on back of record chip sales that ballooned amid chip shortage.
As global supply shortage enters the second year, these companies have also announced tens of billions of dollars in investments for new factories. TSMC has earmarked $40 bn+ investment for manufacturing expansion and announced to hire over 80,000 employees in 2022, while China’s SMIC has announced plans to invest record $5 bn in capacity expansion this year.
Furthermore, major Chinese technology companies like, Alibaba, Baidu, Oppo also announced plans to develop their own chips. As Huawei Technologies continues to suffer from the US crackdown, the tech giant has also focused on its expansion into domestic chip industry. Meanwhile, ZTE, China’s second-largest telecoms equipment manufacturer, is employing TSMC’s advanced chip production and packaging technologies and focusing on building its own base station processors, Nikkei reported.
What happens after the chip-shortage?
So far, 2022 appears to be a promising year for the semiconductor businesses in Asia Pacific, suggest experts.
John Patrick Lee, Product Manager at VanEck, stated that semiconductor demand shows no signs of abating any time soon. As per the expert, the current chip shortage has led to a supply/demand imbalance, which is expected to continue into the foreseeable future.
Similarly, according to Greg Kyung Mo Kang, Research Team Head, at Eastspring Investments, Asia’s dominance of the global semiconductor supply chain is likely to remain unrivalled in the near term, given “the amount of time, capital, expertise, and supporting ecosystem needed to build up a viable alternative.”
On the other hand, some experts are asking how sustainable the industry growth is.
“We’re just not going to get this kind of slingshot effect that we had in the pandemic,” said SIA CEO John Neuffer, adding that, annual chip sales and units are projected to reach moderate annual growth in 2022.
The WSTS industry forecast also cut its 2022 global semiconductor market growth forecast to 8.5% y-o-y from its previous estimate of 10.1%, reflecting lower prices of Dynamic random-access memory (DRAM) and memory demand slowdown.
Other industry experts are also claiming that the current expansion could lead to overcapacity at some point in the future. Where analysts at Taipei-based market intelligence provider TrendForce says the chip squeeze won’t end until the second half of 2022, Deloitte Global experts forecast the industry to reach a supply-demand equilibrium by early 2023.
Jim Handy of Objective Analysis who publishes on Smartkarma says, “As long as current unprecedented demand levels continue, there is no reason to expect for chips to fall into an oversupply for the next two years.”
The analyst is however concerned about the possibility that pandemic-related macroeconomic events could create “a global financial collapse, which would take the semiconductor market down with it.”
“Since chip prices are currently high, this would result in a bigger revenue drop in semiconductors than in the global economy,” Handy adds.
