The world has an overabundance of microchips

There is another collapse in the global microchip market: prices have collapsed, because due to low demand, manufacturers have nowhere to put their goods, and they suffer huge losses. Meanwhile, back in 2021, the world faced a critical drop in semiconductor stocks. For the Russian microelectronic industry, the situation is aggravated by the fact that our country is under sanctions and the supply of high-tech equipment and components from the US and Europe has been stopped.

As Bloomberg columnist Sohee Kim explains, the $160 billion industry is facing one of the worst crises in history: “Warehouses are overstocked with chips, customers are reducing orders, Asian economies dependent on technology exports are hurting.

This drop was preceded by a boom in sales in the industry caused by the pandemic, when people equipped home offices and bought computers, tablets and smartphones. Now, the author of the article notes, consumers and businesses are holding back from large purchases due to inflation and rising interest rates occurring around the world. Gadget manufacturers – the main buyers of chips – have huge stocks of components, and they do not need more for the future.

Now the leading semiconductor manufacturers in the world are Taiwan Semiconductor Manufacturing Company (TSMC) and South Korean Samsung. The first occupies 54% of the market, the second – 17%. Their shares began to decline, and sales decreased by 30-50%.

But what consequences will this story with the overstocked market have for Russia? In December last year, Reuters reported that Western chips, including those from US companies Intel and AMD, continue to be imported into Russia in circumvention of sanctions. Deliveries go through unofficial channels – from companies from Turkey, Hong Kong and Estonia.

“The absolute majority of goods, except, perhaps, food products, cannot do without microchips in the modern economy,” says Artem Deev, head of the analytical department at Amarkets. “Sanctions turned into a shortage of chips for Russian banks, which made it necessary to stop reissuing plastic cards for a while.”

So the problem in Russia with these components is extremely acute. If for the defense industry and government agencies their production at domestic enterprises is still possible (companies produce chips of previous generations), then more advanced semiconductors are not made in our country. And without them, in particular, machine tool building, the automotive and aviation industries, and the space industry cannot do.

However, Deev recalls, we have a state program for the development of the microelectronic industry. If implemented, by 2030 Russia will be able to independently provide itself with semiconductors of previous generations.

What can not be said about the latest microcircuits (with a resolution of 9-15 nanometers): no country alone produces them, it is always the result of an international division of labor, cooperation between the world’s leading concerns. And Russia will not be able to buy these semiconductors (for example, from TSMC, its traditional partner) due to sanctions, Deev notes.

“Strictly speaking, in the situation with the collapsed global demand, little will change for us,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies, “Sanctions from “unfriendly” states remain in force, the supply of chips through parallel import channels is small, and at their expense unable to replenish the dwindling stocks of finished products. It is possible, of course, that demand from foreign intermediary companies (in the chain of parallel imports) will increase, and some of the main producers will turn a blind eye to the threat of secondary sanctions and be ready to take risks. But this, firstly, is unlikely, and secondly, it will not solve the shortage problem.

As for imports from “friendly” states, the question arises of the ratio of price and quality, which may not always suit us. In addition, the situation is complicated by a new round of technological war between the US and China. So, the other day, official Washington stopped granting licenses to American companies to export technology to Huawei.”

Russia has only one way out, Maslennikov concludes: to speed up its own program for the development of the microelectronic industry, which remains rather modest in scope. But given the circumstances associated with sanctions and the unfavorable world situation for the country, it will be necessary to increase not only the pace of its implementation, but also the volume of funding.