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Global chip shortage far from over and now semiconductor market faces slowdown

Plus: ASML cuts growth forecast and US CHIPS Act in limbo

The global shortage of semiconductors might not be over yet, at least according to IDC, but a slowdown in the market is coming as consumer demand falls away and the supply side faces a new heap of challenges.

Shortages have been evident in the semiconductor market for well over a year now as surging demand caught out chipmakers while economies tried to restart following COVID-19 shutdowns.

There had been signs that the situation may be changing, with research outfit Omdia reporting last month that the semiconductor market appears to be plateauing after a period of record revenues, and Garner saying in April that chip shortages had peaked.

But analyst IDC has warned that we are not yet through the shortages, and that the war in Ukraine is playing a part because both Ukraine and Russia are major suppliers of gases such as krypton and neon that are needed for semiconductor manufacturing.

Semiconductor equipment maker ASML has cut its growth forecasts because delays to final checks on some shipped chip-making machinery mean it cannot officially book the revenue.

ASML, which produces the photolithography systems used in the making of chips, said it began skipping some final tests last year to speed up delivery of kit. This let chipmakers get their machines sooner, but ASML had to delay sales recognition of those deliveries until formal customer acceptance.

This means its likely sales growth for 2022 will be about 10 percent instead of the anticipated 20 percent. The Dutch company reported revenue of €5.43 billion ($5.53 billion) for Q2 2022, up from up from €4.0 billion in the same period last year.

IDC Research Director Vinay Gupta said in an interview with CNBC that semiconductor supply is not going to increase in the immediate future.

"There are a lot of raw materials, gases, which are required for production of those semiconductors," he said. This is causing problems in the supply chain that are leading to price increases of components, and ultimately pushing up the cost of end-user equipment.

This in turn is contributing to inflationary pressure, which is now causing a slowdown in spending, especially for consumer devices, Gupta said. Both PC and smartphone shipments are falling. Spending on enterprise IT is still largely holding up, but even here inflation is starting to have an impact.

"But the hopes are that this will be a shallow slowdown, because the governments and central banks are trying to balance the rising inflation and interest rates," Gupta said.

Omdia also warned in its report that increases in raw material prices globally are putting pressure on inflation, dampening consumer spending in Q1 of this year, particularly for smartphones.

Earlier, analysts at Jefferies Group had warned that the semiconductor industry is on course for an "inventory correction" in the second half of 2022 or early 2023. This view was formed by rising inventories in the supply chain combined with slowing demand across multiple industry sectors and a weakening economic backdrop, the company said.

CHIPS Act funding in development hell

Amid all this, the US is still trying to pass a bill that would make available up to $52 billion to boost the country's semiconductor industry by funding research and development and subsidize the building of new fabrication plants on US soil.

The US Senate yesterday voted 64-34 in favor of advancing the CHIPS Act funding, a move that sets the stage for the final consideration of the bill. The legislation is part of a larger bill to increase federal funds for scientific research that has been proceeding through the two US government chambers since last year.

GlobalFoundries has joined the voices in the chipmaking industry calling for the CHIPS Act funding to be passed. According to Reuters, the company said it may delay construction of a planned semiconductor factory in New York state if the bill fails to pass in the coming weeks. ®

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