The End of the Chip Crisis?

We were there, at EMS (Electronics Manufacturing Service) Day 2022 on September 8, when Market Researcher Dieter G. Weiss, Founder of in4ma, said “What crisis?”. He wasn’t joking.

His company recently surveyed 397 European EMS, asking them to forecast their annual revenues for 2022 based on how their first half of the year went and their expected obstacles for the second half. 115 companies replied, all with similar answers that can be summarised as follows: they predicted a 22% revenue growth for 2022 – of which 8.5% is price, 13.5% is quantity. (Source: EMSNOW)

The question spontaneously arises: how can we keep talking about chip shortage when the revenues of the industry that is relying on these chips to produce products are actually increasing? 

The Semiconductor Rollercoaster

From Super Cycle…

History shows that the economy is cyclical, characterised by ups and downs. For the semiconductor industry, 2020-2021 has been a period of great expansion in response to the Covid pandemic. This was caused by an increase in demand for the 3Cs (computer, communication and consumer electronics), as everyday life got more digital than ever before, which in turn resulted in chip shortages, as the stockpiling rush started.

As with all complex issues, generalisation is not the way to go! We, too, tried to be as precise as possible in our last update on the supply shortage, where we listed specific materials for chip making scarce at the time of writing. However, the actual state of the chip crisis is not easily determined and news are often magnified to catch attention.

Here’s when Weiss’ expertise comes in handy: what “chips” are in a crisis exactly? In fact, it's crucial to differentiate between semiconductor types and market segments. For instance, during the pandemic, memory chips, needed for the 3Cs, accounted for 85% of the semiconductor demand, contrary to the 3.5% of analogue chips, required for automotive. (Source: in4ma) 

“There was and there is no general allocation crisis, but a specific crisis for individual semiconductors.” – Dieter G. Weiss

Now that life has gone back to “normal”, since the first half of 2022 we’re witnessing a fall in demand for 3C chips (especially memory, logic, and microprocessors), therefore an easing of this specific shortage. Clearly, this doesn’t apply to other market segments, such as automotive.

…To Market Crash

At this point, if the semiconductor industry has reached its peak, will it take a downturn now? We’ll let Malcolm Penn, Founder and CEO of Future Horizons, answer. In his Mid-Term Semiconductor Industry Update webinar, broadcasted on September 13, 2022, he predicted a -22% growth in the chip market in 2023. He then added that, actually, the down cycle has already started and it will follow the trend of the global economic recession. 

Weiss’ analysis of the European market helps put it in perspective: so far, 2022 has been an exceptional year in terms of volume of sales growth compared to the previous nine years. While this growth is expected to decrease in 2023, it will still be higher than the previous nine years.

Only time will tell what course the industry will take, but for now both industry analysts agree on the importance of preparing ourselves for another challenging 12 months, seeing the ongoing macroeconomic problems, the war in Ukraine and the climate crisis upon us. 

Not the brightest of scenarios, we know! But, if Penn is right, the collapse typically lasts four quarters, so we could be looking forward to a new rise in the coming years. 

Brace yourselves in the meantime

In this climate of uncertainty, we believe EMS, OEMs, distributors and brokers should rely on each other as partners rather than solo players and create a unified network in order to face current and future crises. Being able to communicate transparently, give and receive feedback quickly, and plan in advance are factors that will benefit the work of everyone involved in the electronics value chain. 

But how to achieve this? The short answer is: collaboration.
The long answer looks more like this: 

• Have early conversations with your OEM on the risks involved in bringing an electronic product to market, i.e. manufacturing, supply chain, and compliance;

• Gain transparency into the supply chain and, therefore, procure effectively;

• Keep winning business with competitive quotation, while reducing overhead and material costs. 

If you don’t know how to go about this, we’re here to help you. We have created the number one Software for the electronics industry that rethinks processes for EMS, OEMs and PCB Suppliers to guide you step-by-step in reshaping the way you work, for a company really future-proof. 

Let’s smooth out the tensions along the electronics value chain together – contact us now.