SEMICONDUCTOR MARKET Outlook 2023: The worst of the chip shortage is over

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2022 has been a tumultuous year for the semiconductor industry, but things are finally looking up. The overall mood regarding the ongoing shortage is positive; many executives believe that the worst of the shortage is over, and that things can only get better here on out.

2022 was a tumultuous year for the semiconductor industry. The outbreak of conflict in Ukraine, rising tensions between China and the United States, and a resurgence in coronavirus cases in parts of the world caused significant problems for an industry vying to correct inventory challenges.

Meanwhile, industry chatter around the health of supply chains, economic pressures, and ongoing inflationary pressures threaten to bring a whole new wave of challenges that will need to be overcome if the industry is ever to be restored to pre-pandemic stability.
Despite all this, industry analysts and spectators have an overall positive outlook for 2023.

The outlook for 2023:

‘Big Four’ firm KPMG, in partnership with the Global Semiconductor Alliance (GSA) conducted their 18^th annual global semiconductor industry survey in Q4 2022, which captures insights from 151 semiconductor executives about their outlook for the industry in the coming year and beyond.

According to the survey, the current Semiconductor Industry Confidence Index score is currently 56 for the year 2023. In other words, the survey’s respondents, more than half of whom are from companies with more than USD 1 billion in annual revenues, have a more positive outlook than negative for the year ahead.

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The easing of supply disruptions

Much of this optimism stems from the fact that the supply disruptions experienced over 2020-2021, and to a lesser extent during 2022, are likely to substantially improve throughout 2023. This anticipated continued improvement on the back of expanded fab capacity and inventory corrections, which will place downwards pressure on demand.

It’s not all good news, though. Some legacy nodes, particularly those in the automotive industry, are expected to continue seeing disruption throughout the year. It might not be until 2024 or later until the automotive sector, a problem that has been openly acknowledged by the leaders of major automakers including General Motors, Ford, and Toyota.

Geopolitical factors are also expected to pose a risk to the semiconductor industry for the coming year from both the supply-side and demand-side. Growing tensions between the U.S. and China have made semiconductors a geopolitical risk flashpoint, prompting the U.S. and Europe to introduce various legislative efforts that seek to safeguard domestic semiconductor production in the long-term.

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When will the chip shortage end?

Considering the already long duration of the global shortage of semiconductors and the severe consequences on the affected industries, many may ask themselves the following question: Will the chip shortage ever end?
According to a report released by the U.S. Department of Commerce in January 2022, there was an alarming shortage of chips; demand for them was 17 % higher in 2021 than two years prior. According to the U.S. government, median inventory had fallen from 40 days to fewer than five days. Accordingly, the end of the chip shortage in 2022 was not expectable.

So, is the end of the semiconductor shortage in sight in 2023? Despite potential challenges to come, the overall mood is positive. 65 % of executives surveyed said that they think the semiconductor shortage will ease in 2023, with 15 % stating that they believe supply and demand have already been balanced for most products. Only 20 % think that the shortage will continue into 2024.

Recent news of a so-called “chip glut” in the consumer electronics space supports this as inflationary pressures and a looming recession have forced people to cut back on their spending. This situation is the diametric opposite of that from a year ago, when electronics manufacturers were struggling to get hold of critical microchips. That said, the automotive space is one area where semiconductor shortages remain problematic, forcing carmakers to extend their waiting lists and continue shipping vehicles without certain features and components.

Interestingly, industry leaders don’t anticipate that the Russia-Ukraine war will have a material impact in 2023. Less than one-third of respondents said that they are concerned about the conflict despite its potential to cause lower revenue growth.

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