The global semiconductor shortage may be easing in some sectors, but other industries continue to face a dearth of chips. According to McKinsey & Co., global semiconductor capacity grew at 7.6% annually on average from 2015 to 2022. That growth is forecast to slow to 4.9% per year between now and 2026.
“Amid global macroeconomic headwinds, semiconductor industry revenues are predicted to fall by 3 to 4 percent in 2023,” the firm reports. “The biggest short-term capacity upgrades will take place in the Greater China area, including Taiwan. Elsewhere, new fabs in recently announced investments will take several years to come online.”
From his vantage point as Digi-Key Electronics’ VP, semiconductors, David Stein agrees with McKinsey’s analysis that very little—if any—capacity has been added to mature chips and technology. For example, many devices that are designed into automotive, medical and industrial applications with lengthy lifespans, and that have been produced from 6- and 8-in. wafers, have not had any capacity added in several years.
“All the focus has been on adding capacity for 10- and 12-in. wafers,” Stein points out. “Many of these mature products are still in demand and continue to have extended lead times.”
The Silver Lining
One silver lining that came out of the chip shortage was that it allowed a lot of companies that had inventory plenty of opportunity to create new chips. New startup-type companies came out of the woodwork and were able to support a lot of customers that weren’t able to source their “go-to” chip.
“This allowed companies to make a name for themselves and we’ve been able to see them do some new and really cool things, like Seeed Studio, SparkFun and Adafruit,” says Stein.
According to McKinsey, the semiconductor bottlenecks include limited capacity, high demand, and overordering—all of which are likely to persist through 2023. “The most extreme pressure will be on mature chips for everyday applications, such as cars, electronics, home appliances, and medical devices,” the company says. “Growth in manufacturing capacity is set to remain patchy until at least 2026.”
More specifically, McKinsey says smaller node capacities are set to expand fastest: seven-nanometer capacity is predicted to grow at a compound annual growth rate (CAGR) of 14% annually and 100-nanometer capacity at 4% per year.
“Varying levels of production reflect wider industry dynamics,” the company adds. “Some companies want to add capacity: Taiwanese chipmaker TSMC, for example, plans to spend $32 billion to $36 billion in 2023 alone, despite expectations of softer demand. Other companies—both integrated device manufacturers (IDM) and foundries—are operating close to or at full utilization.”
Prices aren’t Retreating Just Yet
With the current downturn in demand for smartphones and PCs, Stein says many suppliers are still very confident in other industries. There’s a need for products in data centers, industrial, automotive, medical and aerospace, to name a few. “The supply to those areas will continue to grow and the demand will [continue],” he says.
So while certain pockets of the market are seeing “excess product” right now, cost decreases may not be as plentiful as the market has shown in the past for some of those products. Some of that is due to the fact that major costs associated with the production of these products are raw materials, labor, energy and transportation—most of which are not decreasing.
“Artificial intelligence (AI) can certainly be used at the time of engineering and creation of the bill of materials,” Stein says. By using AI to scan Digi-Key’s inventory, for example, engineers can design with the “right products that will be available and help mitigate supply chain issues down the road.”