“Overproduction is noticeable in many segments of the chip market”

An associate professor at Tufts University (Massachusetts), a researcher and author of books on the global high-tech market told Kommersant about his view on the development and problems of world semiconductor production. Christopher Miller.

– What are the reasons for the completion of the shortage of semiconductors and the overproduction that has begun?

“Overproduction is already noticeable in many segments of the chip market. The main reason was the slowdown in the global economy, which reduced the demand for smartphones and PCs, the growth of data centers. All this has significantly reduced the shortage, which in 2021-2022 was caused by disruptions in supply chains. However, some types of chips, such as those needed for the automotive industry, are still in short supply.

— How will the current situation related to overproduction affect prices?

— For many types of chips, prices are already falling. Memory chips, for example, are the most affected by market cycles, so their prices have fallen particularly sharply in the past few months.

– SMIC CEO Zhao Haijun in May 2022 linked the drop in semiconductor sales, including with the military conflict in Ukraine. What impact did it have on the market and will it subsequently lead to higher revenues for semiconductor manufacturers, for example, in connection with the need of military-industrial complex enterprises in the US and the EU?

— The Russian market occupies a small share of the global chip market, so I do not think that the Ukrainian conflict could significantly affect the global market. Its main consequence was the rise in commodity prices in the first half of 2022, which slowed down the global economy, reduced consumer activity and corporate investment in many countries.

— How did the sanctions, according to which foreign manufacturers and contractors cannot cooperate with Russian companies, affect the revenue of foreign semiconductor manufacturers?

“Sanctions and export controls have had some effect, but for many producers the impact is relatively small, simply because Russia is not a big market.

— Are Chinese manufacturers now ready to cooperate with Russian chipmakers?

— Most Chinese chip manufacturers have to be very careful when it comes to selling to Russia. Most of these companies, especially those with advanced manufacturing technologies, require American, European or Japanese components and machine-building capacity to function. If they start shipping chips to Russia, they risk losing access to components and materials.

— Over the past few years, we have seen how the world’s largest players in this market diversify their production capacities. TSMC, for example, has completed the first phase of building a plant in Arizona. What is the reason for the interest of market participants in increasing production capacity and building enterprises in various countries?

— Authorities in many countries are increasingly concerned about the growing concentration of chip manufacturing on both sides of the Taiwan Gulf. Taiwan produces 90% of the most advanced chips, and China is actively growing the production of simpler chips. In the event of a Chinese attack on Taiwan, the entire world economy will plunge into a manufacturing crisis because production will be disrupted. Therefore, many countries are trying to develop their chip production to minimize possible risks.

— What is your forecast for the market for the current year?

– If the world economy does not slow down more than it is expected now, then the semiconductor market will most likely begin to recover by the end of the year. I think if the current overproduction is to any extent slowing down new investment in the industry, the reality is that the world will need a lot of new products in the coming years, so investment in chip manufacturing will continue.

Interviewed by Evgeny Khvostik