Supply Chain Inventory Is Too High, The Semiconductor Industry May Fall Sharply

Recently, an analyst at CLSA's forum told CNBC that even if there is no trade war between the United States and China, the semiconductor industry will soon fall sharply. He said that factors such as slower demand for memory chips, rising inventory levels and falling prices could lead to a cyclical decline in the industry. Other analysts have made similar predictions. Some people say that the trade war may further increase the decline because it affects the profitability of the semiconductor industry.

Sebastian Hou, a semiconductor investment analyst, recently said at the Lyon Securities Investors Forum in Hong Kong that the tariff struggle between the two economic powers has had some impact on semiconductor market demand, but the market has shown signs of decline before then. Including the decline in memory chip prices, increased inventory levels, demand in high-growth areas such as data center servers, automotive and industrials has slowed.

He added that the trade war will of course have an impact on the market demand potential, but in fact, even without a trade war, the semiconductor sector will experience a correction, because the inventory of the entire supply chain is already very high. The callback he said usually refers to the price of financial assets such as stocks falling by 10% or more.

Others, such as Morgan Stanley analyst Shawn Kim, pointed out that the memory market environment has become increasingly negative after talking to semiconductor buyers and sellers. Some experts even predict that trade tariffs will make the semiconductor industry's earnings fall by 25% and make the situation worse.

According to market research firm Gartner, global semiconductor revenues in 2017 were $420.4 billion, up 21.6% year-on-year. The profit growth was mainly due to the storage chip market, which caused the price to rise due to insufficient supply. In January this year, the agency predicted that global semiconductor revenues will resume single-digit growth in 2018, and "the memory chip market will experience a correction in 2019, and semiconductor revenue will decline slightly."

The predictions of Sebastian Hou are similar. "From the fourth quarter of this year to the fourth quarter of next year, we may see a negative growth in the semiconductor industry in the past few quarters." He predicts that the semiconductor industry may even experience zero growth in 2019.

However, the development of new technologies such as artificial intelligence, 5G, and the Internet of Things may drive demand in the semiconductor industry to pick up again. However, Sebastian Hou believes that these technologies need to be treated with caution.

“Most of these technologies are still in their early stages, so the industry has high expectations for them. This explains the reasons for overbooking in the supply chain and why inventory levels are so high.” Sebastian Hou expects that once the industry At the end of the cyclical downturn, the semiconductor industry may even grow at a faster rate due to the demand for new applications.

From another perspective, the prospects of many chip makers currently leading the market are not very optimistic, such as Samsung Electronics, Intel, SK Hynix and Micron, as more and more technology vendors and Internet companies are starting to develop their own Memory chips required for products and data centers.

“These companies want to optimize their performance to differentiate, so they have the incentive to do it,” Sebastian Hou said. “This is also a typical industry shift. The market share of existing leading companies in the next five to ten years will be Will be reduced."