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When the chip boom meets the industry slump

When-the-chip-boom-meets-the-industry-slump

Preface

We all know the importance of chips. The decoupling of the chip industry chain between China and the United States has become a fact, and is becoming more and more serious. At present, the rise of Chinese chip has come to the most critical and difficult historical moment.

It comes as the global chip industry heads into a recession cycle, with AI chip manufacturer Samsung forecasting a sharp drop in third-quarter net profit due to falling demand for downstream electronics. The president of TSMC also believes that the semiconductor PCBA industry may shrink in 2023.

China’s chip industry is also facing a turbulent time at this time: the big fund storm continues to shake, and the Biden administration on October 7 to produce a number of further decoupling of Chinese and American chip resolution, also far-reaching.

The recession

The chip cycle has moved from “mid” to “late” period for the first time since 2019, as supply and demand gradually move into balance. Samsung Electronics, Micron, SK Hynix and other memory chip makers sharply cut their ratings and price targets, which became the trigger for the three giants’ share prices to plunge.A year later, the chip downcycle began in earnest as demand for downstream electronics slowed. Poor sales of the iPhone14 series were seen as a wake-up call for the chip industry.

Separately, Samsung Electronics expects third-quarter profit to plunge 32% from a year earlier, its first decline in nearly three years. Micron’s fourth-quarter fiscal 2022 revenue fell 20 percent year over year to $6.64 billion, its first decline in more than two years. Micron also warned: “All customers are cutting orders.”

Demand is low, prices are falling and big companies are cutting capital spending in anticipation of the coming cycle. Micron decided to cut capital expenditure by 30% in fiscal 2023, Kaixia announced production cuts at its two NAND flash memory plants, and SK Hynix will cut capital expenditure by 70%-80% next year.This is not good news for China’s rising chip industry.As a link in the middle of the entire industrial chain of science and technology, the chip cycle is inevitable.

CINNO data shows that China sold 134 million smartphones in the first half of this year, down 16.9% year on year; Global shipments of computer brands also fell 15.3 per cent in the second quarter from a year earlier, according to IDC. Electronics boom turned sharply down, chip industry chill hit.

chip-industry-chill-hit

From the perspective of several representative Chinese enterprises, Weil shares, which owns one of the world’s three largest CMOS technology, China’s most important memory chip leader Zhaoyi Innovation, and the world’s third largest closed testing company JC Technology, provide services including PCBA testing have entered an explosive period of performance since 2019, but the amazing performance of Weil shares came to an abrupt end this year.

In the first half of 2022, the revenue and non-profit deduction of Weil shares rare double decline, the revenue of 11.072 billion yuan, down 11.06% year on year; Deduction of non-net profit of 1.451 billion yuan, down 26.18% year on year.Especially in the second quarter, the performance is very dismal, the revenue decreased by 11.27% year on year, deducting the net profit of 549 million yuan, down 46.26% year on year.

The high prosperity of the industry is no longer. At the same time, the technological blockade built by the United States is tightening. The latest news shows that Apple plans to suspend the use of Cheung Kong memory’s flash memory chips.

It is said that the suspension of the plan is due to the fact that CMEMORybank did not want to further stimulate the sensitive nerves of the US side at this sensitive point in time to impose more severe sanctions, so it chose to “withdraw from the Apple supply chain”. This shows that the “chilling effect” brought by the US containment of China’s chip industry has actually taken effect.

chilling-effect

As China is the first enterprise to attack the memory chips, Yangtze River storage is to break the expectation of China’s “zero existence” in this field. In fact, Apple originally considered making at least 40 percent of the world’s iphones run on chips made by Changjiang Memory, but that plan was eventually scrapped.
Industry downturn, external blockade, high-end blocked, China’s chip revitalization process encountered major environmental changes again.

The revitalization

In fact, throughout the history of the world chip industry, the leading countries in this field, without exception, all follow the “nationwide system”.What many people don’t know is that in the late 1970s and early 1980s, China’s chip technology was only six years behind the United States, but far ahead of South Korea and Taiwan.

And one of the main reasons why China was overtaken by Japan and South Korea in the mid to late 1980s was that they supported their companies through national support and trade protection; But China in the worship of foreign countries and “build better than buy” ideological trend, holding overseas enterprises as guests
In February 1983, Lee Byung-chul, the founder of Samsung Group, announced that Samsung would invest 100 billion won ($133 million) in the semiconductor industry.

After that, Samsung withstood the technological blockade and low-price dumping of Japanese companies and suffered losses of up to $300 million during the period. The South Korean government made a national effort to support Korean companies to overcome technological difficulties and provide support for R&D expenses.
After nearly a decade of hard struggle, Samsung overtook Japan’s NEC in 1992 to become the world’s largest DRAM memory maker for the first time, and has been the world’s No. 1 for the next 30 years.

Today, chip protection barriers continue to increase. The United States promulgated the Chip Act and tried to form the so-called “Chip Quartet Alliance” (Chip4) with Japan, South Korea and Taiwan. Japan and South Korea are also mulling new industrial policies. There is nothing in any of this to suggest “free market competition”.
In the future, market operation will remain the basis for the operation of the industry, but it will also focus more on Chinese circulation and support. The reason is not difficult to understand, this is also the global chip power common practice.

chip-protection-barriers-continue-to-increase

Conclusion

After nearly 10 years of hard work, the chip industry has made great progress, and some competitive enterprises have also been born.

For scientific and technological innovation, China has set up a technological innovation system with enterprises as the main body, market as the guidance and deep integration of industry, education and research. To “improve the new nationwide system, strengthen the country’s strategic scientific and technological forces… Guided by the strategic needs of the country, China will gather its strength to carry out original and leading scientific and technological breakthroughs…”

As can be seen, the development of high-tech field will manifest more strategic will, future chip industry, the power of state will present more driving force.At this critical moment, in the changing international economic situation, a new balance and methodology is emerging between the market and the will of the state.

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