Navigating the Semiconductor Industry’s Road to Recovery: Insights on OCMs and Implications

The semiconductor industry has faced significant challenges, with plummeting sales and raw material shortages impacting the supply chain. Original Component Manufacturers (OCMs) are actively seeking new opportunities in automotive applications, AI, and 5G sectors to mitigate the effects of the demand slump in personal electronics. While the industry shows signs of recovery, the path ahead remains uncertain.

Semiconductor Sales Show a Glimmer of Hope:

According to reports from the Semiconductor Industry Association (SIA) [source], the industry is beginning to witness a potential turnaround. After months of declining sales, there was a slight increase in semiconductor sales in March, indicating a possible bottoming out of the demand slump. Prominent OCMs like SK Hynix and Samsung Electronics anticipate industry recovery by the end of Q2 2023.

Diversification Strategies for OCMs:

Amidst the sluggish demand, OCMs are exploring alternative avenues to sustain their operations. Automotive applications have emerged as a competitive option, especially with the rising popularity of electric vehicles (EVs) and the global focus on eco-friendly measures. Some OCMs have witnessed significant growth in the automotive market, capitalizing on the wave of EV adoption. Others are directing their efforts towards the AI and 5G sectors as organizations embrace digitalization.

Tremendous Opportunities in the Automotive Sector:

Qualcomm and MediaTek, among others, have shifted their focus to automotive and computing chips for automotive applications [source]. Qualcomm’s automotive segment, buoyed by innovations like the Snapdragon Digital Chassis system, has experienced growth during this period. The car’s transformation into a digital product offers ample opportunities for reinvention and expansion in the automotive sector.

The Rise of AI and 5G:

While personal electronics demand remains subdued, interest in AI and 5G products has sustained advanced node sales. OCMs banking on these technologies can navigate the current slump. Leveraging the growing demand for AI and the rapid deployment of 5G networks, OCMs aim to revitalize their operations and overcome the challenges posed by the market cyclicality.

Addressing Raw Material Shortages:

The semiconductor supply chain continues to grapple with raw material shortages, including a significant impact from the shortage of neon gas caused by the war in Ukraine. OCMs, such as TSMC, have managed to control prices despite paying higher rates for neon gas [source]. Adequate stockpiling after the 2014 Crimea Crisis provided some initial resilience, but the prolonged war has exceeded the stockpiled quantities. Rising energy costs resulting from the European energy crisis have further elevated production costs, prompting manufacturers to pass on the burden to consumers.

TSMC’s Optimism and Apple’s Influence:

TSMC, a leading OCM, has reassured customers about mitigating further price impacts due to the war in Ukraine. Although facing higher costs, TSMC has managed to shield itself from significant losses due to its dominance in advanced nodes for high-end customers. Notably, Apple’s substantial bookings for TSMC’s N3 family capacity and N3B capacity indicate a positive outlook for profitability [source]. The demand for AI and 5G technologies continues to drive TSMC’s growth, contributing to its resilience in the face of rising costs.

Anticipating Recovery and Stability:

While challenges persist, industry experts forecast a potential recovery starting in Q2 2023. OCMs and manufacturers anticipate stabilizing the supply chain and regaining equilibrium similar to pre-Covid levels [source]. The industry’s ability to adapt, diversify, and leverage emerging technologies will play a pivotal role in navigating the road to recovery and ensuring long-term sustainability.

The semiconductor industry’s journey to recovery is marked by OCMs’ strategic shifts, diversification into automotive, AI, and 5G sectors, and efforts to mitigate the impact of raw material shortages. Despite the present challenges, signs of improvement offer a glimmer of hope for the industry’s future. As technology continues to advance and market demands evolve, adaptability and innovation will remain vital for OCMs in shaping the future of the semiconductor landscape.