The turbulent 2022 will trigger inventory adjustments in the semiconductor industry, and companies are coping with the short-term down cycle, but the development trend behind it deserves attention. Due to artificial intelligence (AI), AR/VR, Internet of Things (IoT), autonomous vehicles, electric vehicles, high-performance computing (HPC), aerospace, satellite communications, 5G/6G, smart cities and many other applied technologies, all rely on To achieve innovation based on the advancement of semiconductor technology, we believe the following trends will affect the development of the semiconductor supply chain in 2023 and the next few years.

01 Reduce supply chain disruption

As countries gradually lift the epidemic prevention and control measures, a new supply chain ecology is taking shape, and the logistics and supply chain disruptions caused by the epidemic prevention and control in the past two years will finally be resolved. China's lockdown and power shortage risks remain, but macroeconomic conditions are likely to improve as epidemic control measures are gradually eased.

02 New product launch stimulates demand

AMD, Intel, and Nvidia are all planning to launch new CPU and GPU products in 2023. Apple will also launch new laptops in 2023 with 3nm chips made by TSMC. It is also rumored that Apple will launch AR/VR devices in 2023, and the sales of new innovative terminal products will drive the growth of chips. According to DIGITIMES Research, the current high inventory of various components and finished products will be absorbed in the first half of 2023.

03 Regionalization and localization

In addition to government incentives to increase domestic chip production, the longer-than-expected Russo-Ukrainian war has prompted semiconductor companies to seek alternative sources of materials and cultivate domestic suppliers. The enterprise has been tempered in the past two years of hard work, and has formed a stronger adaptability in supply chain management.

At the same time, climate policies such as net-zero carbon emissions requirements are pushing companies to reduce their carbon footprints. End-equipment customers may begin to demand chips produced near their primary markets or assembly locations, increasing regionalization rather than globalization. According to reports, Apple has placed an order for 3nm chips produced in the United States, and TSMC's confirmation of plans to produce 3nm chips in Arizona also provides evidence of this trend.

04 Decoupling will continue

As we will likely continue to see more regulatory restrictions and changes in technology export controls in the future, all will be affected. There have been reports that the company is trying to reduce the US technology content or change the node to avoid US sanctions.

Gabriel Chou, vice-chairman of WSTS Asia Pacific, said that the World Semiconductor Trade Statistics (WSTS) will soon release its latest forecast for 2023. "We expect a downward revision." WSTS's previous forecast, released in August, predicted that the global semiconductor market would grow 4.6 percent to $662 billion in 2023, compared with a projected 13.9 percent growth in 2022.

DIGITIMES semiconductor analyst Eric Chen predicts that due to the uncertainty of the macroeconomic environment and the Sino-US technology war, the revenue of global foundry manufacturers will decline by 2-3% in 2023.

"Looking forward to 2023, considering that the inventory correction of terminal products will continue until the first half of 2023, and the economic outlook will affect people's willingness to consume, the inventory correction of terminal products is likely to be extended. By 2023, the revenue of global wafer foundries will be down 2.3%, while TSMC is the only foundry that will grow in 2023," Chen wrote in his latest report. According to DIGITIMES Research estimates, the foundry market revenue is expected to grow by 25.8% to $137.2 billion by 2022.

While analysts keep citing geopolitical risk as one of the main uncertainties that could disrupt supply chains, for many semiconductor makers it is not as worrisome as a "demand freeze" that leads to large inventories that need to be corrected by end-equipment customers. People are worried. Semiconductor companies agreed on third-quarter earnings calls that inventory adjustments and weak consumer demand are the biggest impacts on their first-half 2023 results.

05 Memory oligopoly competition heats up

Micron has announced cuts in DRAM and Nand production to ease the impact of falling prices. SK Hynix also announced a 50% cut in capital spending. These measures are good for defending against falling memory prices, but we need to pay attention to Samsung's actions, because it is the only company that refuses to cut production or capital expenditure. The competition for Nand flash with 200+ layers is fierce. SK Hynix plans to launch 1 beta processing node DDR5 chips in the first half of 2023, while Micron has started mass production of its 1 beta processing node chips in Taiwan, China in 22Q4, and is currently preparing to mass produce 1 gamma node in 2024.

06 More companies adopt Arm and RISC-V architecture

Brands and system owners who design their own chips have become mainstream, with many opting for Arm or RISC-V architectures. While some may find Canalys' recent predictions that 50 percent of the server and 30 percent of the laptop market will be based on Arm architecture by 2026 ambitious, RISC-V's rapid growth may be more shocking to them. Calista Redmond, CEO of the RISC-V International Foundation, once said that by 2025, RISC-V is expected to account for 14% of the global CPU market and 10% of the global automotive core market, and RISC-V cores are likely to see another 2023 100% annual growth. Semico forecasts a CAGR of nearly 160% for RISC-V cores from 2018 to 2025.

07 Moore's Law is not only continued by EUV

Foundries are developing innovative technologies such as carbon nanotubes, memory computing, 3DIC heterogeneous integration, and composite materials to manufacture chips with smaller footprints, greater computing power, and lower energy consumption. And there are new players joining to join the competition. Supply efforts aside, if there is enough innovation in end devices to drive demand for sub-2nm chips, we will see a continuation of Moore's Law, which predicts that the number of transistors on a chip will double every 2 years.

08 Talent crunch

Due to the complex division of labor in the global semiconductor supply chain, there are simply not enough engineers to fill job vacancies in the global semiconductor industry, at least in the short term. This is already the case in Taiwan, which already has the largest number of semiconductor engineers to produce 60% of the world's chips. Although many countries and companies have invested funds and resources to limit chip supply and increase domestic production, the talent shortage problem is difficult to solve in the short term and may hinder the effectiveness of investment. In countries that are backing up or building semiconductor industry ecosystems from the ground up, talent shortages will be even worse. Without enough talent, the huge investment in building domestic chips will remain a pipe dream.