Surging demand has driven record revenue over the past few years, but nothing lasts forever.
The semiconductor market is flattening after a period of record revenue, according to research firm Omdia.
The report joins a growing number of warnings that the chip industry is headed for a slowdown due to global economic impacts such as companies hoarding parts and inflation.
Omdia’s latest analysis of the global semiconductor market shows that the market reached a plateau in the first quarter of 2022 after five consecutive quarters of record revenue and continued demand growth.
For now, the decline appears to be fairly modest, down just 0.03% compared to the previous quarter. The first quarter of the year is also often a “down quarter” as demand weakens after the holidays, with an average drop of 4.4% in previous years, Omdia said.
Nonetheless, this small drop has broken the semiconductor market every quarter since the start of 2020, noted Cliff Lembach, senior research analyst at Omdia and author of the company’s Semiconductor Competitive Landscape (CLT) Spotlight Service. Both set a streak of new revenue records.
According to Omdia’s analysis, almost all semiconductor components experienced some small sequential growth between 1Q22 and 4Q21, with the exception of CMOS sensors, which declined 16% quarter-on-quarter.
Omdia said other factors at play in the first quarter included: higher global raw material prices, putting pressure on inflation; lower consumer spending, especially smartphones, in the first quarter; coupled with the ongoing impact of the pandemic on key markets, It affects the supply chain of smartphones and other electronics.
Earlier this month, analyst firm IDC predicted that semiconductor makers were on track for another healthy full-year growth, but also highlighted problems with the raw materials needed to make chips that will cause shortages to persist into early 2023.
It also warned that manufacturers building out new capacity could lead to a surplus of components and would increase the risk of excess capacity in the industry.
This may be happening. Research firm TrendForce said this week that slowing demand for consumer electronics means that system suppliers and distributors are building up DRAM inventories. This in turn means they won’t need to buy as much DRAM inventory in the near future, which could see memory prices fall 3-8% in the third quarter despite inflation.
Last month, analysts at Jefferies Group warned that the chip industry will see an inventory adjustment in the second half of 2022 or early 2023. This view was formed due to increased supply chain inventories in the first quarter, coupled with slowing demand in multiple industries and a weakening economic backdrop.
Just this week, Nanya Technology, one of Taiwan’s top memory chip makers, warned that revenue this year may decline due to slowing demand, according to media reports. The company cited inflation, which has dampened spending on consumer electronics, and said it has led to inventory adjustments at PC and smartphone companies.
Nanya expects the adjustment is expected to carry over into the next quarter and possibly into the fourth quarter of this year, which goes against the traditional business model of the chip industry, which is usually the peak season.
