Our appreciation of TSMC’s success is enhanced when seen in the context of the heavily cyclical nature of the semiconductor industry – the demand and supply of it. This piece suggests we might see that again. The Covid driven acceleration of digitisation has created a boom in all things electronic and hence a severe shortage of semiconductors having a knock-on effect on industries ranging from automobile to aviation to consumer appliances. In light of this demand, the industry has responded with huge capacity additions which research firm IDC suggests will likely cause a supply glut as early as 2023.
“The IDC report (via The Register) notes that it expects the semiconductor industry to see “normalisation and balance by the middle of 2022, with a potential for overcapacity in 2023 as larger scale capacity expansions begin to come online towards the end of 2022.”
As for what large-scale capacity expansions are on the way, there are a multitude of fabrication plant projects in the works. Intel, Samsung, and TSMC (to name only the largest) are all planning entirely new advanced chipmaking facilities, including heaps in the US.
So an improvement like the one the IDC report must also depend on investment going into maintaining, improving, and expanding existing foundry capacity. As new process nodes begin to reach volume production that too will also help ease current congestion.
Manufacturers will be cautious to going overboard in increasing supply, though. They’re selling absolutely everything they can build right now and overdelivering on the supply front could leave them swimming in leftover chips or having to drop prices. That actually happened to Nvidia once, and it did not end well.
It’s a bit of a tightrope: on the one hand, the massive potential in serving more products to more customers; on the other, the potential to be left with expensive fabs not making as much profit as they could be.”
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
Copyright © 2022 Marcellus Investment Managers Pvt Ltd, All rights reserved.