Is the Semiconductor Market Faced with New Challenges?

The industry continues to adjust to changes in demand in the semiconductor market, including struggles for the auto industry and new export regulations.

As 2022 comes to a close, a sense of Deja Vu can be felt by many in the industry. Despite some relief in the supply chain for semiconductor demand, many parts of the industry are still left floundering as they wait for their semiconductors to become available. Automakers are still taking a hit due to the lack of semiconductors, and the Chinese semiconductor forecast is bleak, thanks partly to strengthened export regulations. To learn more about what’s to come in the semiconductor market, see our November industry update.

Semiconductor Market & Sales Decline

2021 brought sky-rocketing demand and sales for the semiconductor market. Thanks to the push from Covid-19, revenue growth was up significantly. 2022, however, is now dealing with the fallout as demand decreases. Semiconductor Intelligence, a market analysis firm, predicts the global semiconductor market will contract by 6 percent. The slow in demand is even more pronounced than initially expected. As remote work increased thanks to the pandemic, this resulted in an unprecedented boom. Now that the world has seen a surge in companies moving back to in-person work, the demand for PCs is down significantly. The current state of the market is wreaking havoc, as seen by the 49% drop in operating profit for Samsung Electronics. With the market swinging towards a more lean time, intentional partnerships are more important than ever.

Automotive Industry Struggles for Semiconductors

Although some semiconductor inventories are growing, those in the automotive industry continue to feel pressure from a lack of stock. Demand for the types of semiconductors used in consumer electronics has slowed, resulting in more supply and a drop in sales. While this does give the industry some much-needed relief, automakers and others who rely on older semiconductors remain tight-pressed to get enough of what they need. Falk Meissner, a partner at Roland Berger, suggests that automakers must be proactive in the current market instead of waiting for the situation to clear on its own. The lack of semiconductors is so bad for some automakers that they are even resorting to temporarily closing factories. The ups and downs of the market have encouraged big-name automakers to take matters into their own hands. Ford Motor, for example, is negotiating directly with semiconductor makers. Moves such as this point toward a changing landscape regarding the automotive industry’s role in semiconductor market production.

New Export Regulations Impact Chinese Semiconductor Market

As new regulations strengthen export, the Chinese semiconductor industry faces challenges. Nine new regulations, launched at the beginning of October, are already causing consequences for the market. One regulation in particular “…restricts the ability for residents in the US (citizens and foreign nationals) to invest in and support the development and production of ICs at China-based semiconductor fabs without a license.” The regulation led to mass resignation from American workers. This included the loss of necessary talent such as top management leaders in the semiconductor market. Another notable regulation restricts advanced fabs in China from obtaining equipment and tools. In a market such as this one, a lack of supplies is more than threatening. The move leaves three major companies, Semiconductor Manufacturing International Corporation (SMIC), YMTC, and CXMT, looking for alternative solutions.

The past two years have painted such a unique landscape for the semiconductor market. From new lows in semiconductor sales to increasing export regulations – affecting more than just China imports. With the news in the semiconductor industry changing daily, it’s more important now than ever to have partnerships you can trust. At Velocity Electronics, we believe transactions are so much more than matters of business – it’s a chance to build relationships. Need custom solutions to your supply chain issues? We’ve got you covered! Get prepared today by visiting our site.

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