Semiconductor Industry Faces Short-term Setbacks Due to Inventory Adjustments and Poor Market Conditions

Taiwan Semiconductor Manufacturing Company (TSMC) began volume production of its 3-nanometer chips in the fourth quarter of last year as scheduled, but has yet to ramp up production due to poor market conditions for consumer products. Industry insiders believe that this is putting pressure on all wafer foundry companies, including TSMC's competitor Samsung. TSMC is facing pressure from shrinking overseas markets and reduced orders from its customers, and has been forced to lower prices to compete.

Industry analysts note that due to more severe inventory adjustments in the PC and consumer product markets than expected, the utilization rate of wafer foundries with mature processes and some relatively advanced 7/8 nanometer capacity has been affected. Both TSMC and Samsung have not escaped this impact, but Samsung's wafer foundry customer base is more concentrated and therefore more impacted. Although TSMC's customer base is relatively diverse, it is still subject to disturbance from economic headwinds.

According to industry experts, given the severity of the current global economic outlook, many US-based companies are adjusting their plans for launching new products, and even many small and medium-sized tech startups are facing bankruptcy due to financial problems, which will reduce demand for wafer foundry capacity in the short term.

Regarding changes in supply and demand in the semiconductor industry, analysts speculate that inventory adjustments for DRAM memory are likely to accelerate and come to an end after hitting bottom, while for wafer foundries with mature processes, the severe inventory adjustments that began in the second half of last year are also expected to wind down in the first half of this year. As for advanced processes, although TSMC only began inventory adjustments in the first half of this year, its 3-nanometer process is expected to ramp up growth in the second half of the year, depending on customer application shipments and demand changes.

In recent news, although the long-term demand for advanced semiconductor processes looks good, due to changes in the economic landscape and uncertainties, many companies have deferred their purchasing of extreme ultraviolet (EUV) equipment. It is expected that TSMC, Intel, and Samsung's wafer foundry businesses will slow down their purchase of EUV equipment in 2023.

Analysts believe that adjusting capital expenditures for major semiconductor companies has become a market consensus in 2023. It is widely expected that TSMC's capital expenditures will still rank first within the industry. Industry estimates suggest that the degree of reduction in capital expenditures for semiconductor factories this year will vary, with TSMC's cut being about 10%. If the reduction exceeds 20%, it indicates that the pressure on the semiconductor industry in the short-term is greater than expected.