okay this year's worldwide semiconductor
shortage limited the supply of everything
from new cars to smartphones to even that PS five that
you still can't get for your loved one and now many
in the chip industry expect the shortage to continue deep into 2022
maybe even 2023 here discusses semiconductor analyst for baird, Tristan,
Ghira and Tristan.
Before we get into the current state of the chip industry, can you briefly discuss
How the industry has transformed over the last 5-10 years?
Yeah, well, good afternoon and thanks for inviting me. It's been really exciting.
Um
It's been really an exciting time in the
semiconductor industry for the past several years.
Um, I think you know, there's been really multiplication of end market. Uh
excuse me, can you hear me? Yeah, I can hear you.
Okay, great. Yeah. So it has been really a number of new growth drivers.
Um you know, if we look at the memory industry for example,
uh you know pc used to be really the primary
driver several years ago now you have data center,
you have automotive,
you have industrial iOT and those are all and markets that are driving double
digit growth and really bringing a lot of tension in the supply chain as
a result in the semiconductor industry we're
seeing pricing going up and typically companies
having much better fundamentals and they did several years ago as a result.
So where are we Right now with the chip shortage And since
there's so many mouths to feed now when it comes to chips,
where are we as we navigate the shortage and could this prolong
Into 2023?
Yeah, very good question and very topical.
I think there's been concern over the past couple of quarters from some investors
that perhaps we could be reaching into a downturn first half of next year.
I mean after all, we've been into 18 months of very strong demand trends.
There's been concerned about the shipping, which eventually correct itself.
And I think what we're seeing today is really
more about a mid cycle correction than a downturn.
And really what happened is that there is so much
shortages that you have literally boxes sitting on the shelf there basically
waiting to the last components to basically shipped to the end customer.
And that is creating some increase in working process inventory.
So companies are slowing down a bit orders of some commodity
components and we've seen that notably in memory where they say,
okay, well if we're not going to ship right away, we might as well
put on the whole, you know,
some orders and that created a bit of a slowdown that we've seen of the best quarter.
And we think this is really temporary.
We think that there is going to be eventually an improving supply into
next year and that's going to result in a reacceleration in shipment.
And we think the second half of next year is going to
be really positive and training above seasonal trend as a result.
So we were very constructive on the semiconductor cycle
for at least the next year and a half.
And we expect to reacceleration, uh mid next year as a result. All right.
So carmakers have recently been making deals directly
with chip makers to avoid inventory shortages.
Do you think that we'll be seeing the same kind of
deal making with save phones or computer companies or console companies
for that matter?
Yeah. Yeah.
So automotive clearly was highlighted as a
big bottleneck in the industry and some of
that was really the result of the pandemic in the first half of 2020.
So basically orders were collapsing as people were obviously confined.
And ultimate tiv customers basically started to cancel the orders and
then when they came back a couple of quarters later,
the foundries told them, you know, sorry,
you have to get back in line and that created or at
least was a key reason for the bottleneck that we're seeing now,
which is in addition to
uh the secular increase in semiconductor content in the automotive.
So, what we're really seeing now is really a steep increase in long term agreement.
Macron talked about it yesterday.
Global foundry talks about it and it's really
about securing supply for the next several years,
which is really good for the entire industry.
It allows companies to better plan for production.
It gives customers confidence that they're going to get the product and it really
reduces the chance of double ordering because
now customers have a better idea of how
much product they're going to get and when and that is very good for
planning purposes and potentially will also reduce
the cyclicality of the business going forward.
Alright, my last question for you is do you think
that the federal government should get involved can
get involved and if they do get involved,
what is it that they can do to help
ease the chip shortage?
Yes, so it's also a very topical questions.
So we expect the US Chip Act to be announced presumably into one of next year.
I think there's a very good chance it gets announced in the first half
of next year and I think uh tell put very good perspective on this.
Intel, Ceo said recently, you know when we add capacity in the U. S.
We're not competing against TSMC or Samsung,
we're really competing against Japan or
Korea which have substantial subsidy programs to
the tune of 20 even 30% of the total cost of the fab.
And it obviously can be very challenging
for companies to compete against those governments.
And so I think the participation of the U. S.
Government will clearly be beneficial within our coverage list,
that would benefit Intel globalfoundries companies that basically want
to implement and expand manufacturing in the U.
S.
And there's a very strong case to do that and certainly a lot
of demand from customers to see production diversification away from just Taiwan.
Alright.
Tristan Gear, a senior research analyst at baird, Thank you so much for your insight
and I hope you're right. I hope we get some more chips soon.