Against a complex backdrop, marked by tensions between Beijing and Washington and demand that is no stranger to economic turmoil, South Korea appears to have set out to add more “drama” to the chip industry. As? Giving a snip to its production, which has fallen at the start of 2023 to levels not seen since 2008, when (another) financial crisis was lurking and the markets were digesting the subprime mortgage crisis.
The data is compelling.
going down gears. Based on the latest data available, that’s what South Korean chipmakers appear to be doing. According to the latest results released by Bloomberg, in February production suffered a notable decline: 41.8% compared to the previous year, which even worsens the 33.9% drop that the industry had already registered in January.
The deliveries also fall and the stock increases. Figures from the South Korean Bureau of Statistics show factory shipments fell 41.6% while inventories rose 33.5%. If the production curve is analyzed from a broader perspective, covering recent years, it is verified that since 2008 not so few chips have left the factories of South Korean companies.
Making a move in Seoul. The country’s authorities have already made a move to support their sector. Just a few days ago the South Korean Parliament approved a bill, known as the K-Chips Act, which aims to boost the national semiconductor industry with more tax credits. The objective: to stimulate investments in a key sector for the nation, which is not alien to the context and already experienced a contraction in its GDP at the end of last year.
In the middle of the month, its president, Yoon Suk Yeol, announced an ambitious investment offensive until 2026 aimed at the semiconductor, electric car or biotech industry to strengthen the nation in the technological race.
the demand curve. To understand the drift of semiconductor production in Korea, it is necessary to know that of demand, which is no stranger to the winds that are blowing on a global scale, with the rise in interest rates, inflation and a slowdown in the purchase of technological devices. . After a 2022 that ended with an “all-time high” in sales, the latest data from the Semiconductor Industry Association (SIA) reflect that 2023 has started with falls.
In January, operations totaled 41.3 billion dollars, which represents a decline of 5.2% compared to December and 18.5% compared to the same month in 2022, when sales reached 50.7 billion.
Semiconductor Industry Association chart.
“The market has cooled”. “Despite record sales in 2022, the global semiconductor market cooled considerably during the second half of the year and that trend continued into the first month of 2023,” said John Neuffer, President of SIA. His prognosis is more optimistic in the long term, with forecasts that he sees as “solid” beyond “the short-term cyclical recession.”
Another prominent voice that has shared concerns on the more immediate horizon is that of Pat Gelsinger, CEO of Intel. At the end of 2022, the executive acknowledged to The Wall Street Journal some fears, such as the impact of inflation on production costs, the increase in the cost of energy or a foreseeable drop in demand due to fears of recession in certain countries.
Beijing-Washington tensions. As icing on the cake and beyond the evolution of demand or the layoffs in the sector, the sector is dealing with another notable challenge, of a geopolitical order: the tensions between Washington and Beijing, which have leaked into the industry with what is known as “chip war”. In its efforts to prevent advanced technology “made in the USA” from reaching China, the US has adopted a series of blockade measures that affect semiconductors made with US technology. In November, Gelsinger himself expressed his concern about the effect of this veto on the supply chain.
Images: SIA and TSMC
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