Chip prices "avalanche"? Return to rationality after crazy rise!

In the past, it was hard to get a chip, and the price changed every day, rising rapidly;

Today, the price of some chips is only one-tenth of the highest price.

The prices of some chips have recently "collapsed", causing some concerns in the chip industry.

Two chips from STMicroelectronics (ST) have become "representatives" in media reports. One chip rose to a peak of 3,500 yuan, but has now dropped to around 600 yuan, while the other has dropped from about 200 yuan to 20 yuan, which is only one-tenth of the highest price.

In an instant, the topic of "Prices of multiple chips plummeted" became a hot topic on Weibo, attracting countless onlookers.

Over the past two years, reports of "chip shortages" have been overwhelming, and the chip shortage has become the biggest concern of almost all industries. Chips are in serious shortage, and it is difficult to get one. The price changes every day, and it has been soaring all the way.

One of the main reasons behind the chip crash is the plunge in mobile phone and PC shipments, as well as high inventory caused by stockpiling. Since 2022, the consumer electronics market has continued to be sluggish, and shipments of electronic products such as smartphones, PCs, and tablets have been declining, which eventually spread to the chip supply chain, triggering a wave of chip order cuts.

Although chip prices have plummeted recently, it is not a "price reduction" in the traditional sense, but more of a rational decline after a crazy rise in chip prices.

The "floating machine"-like market mentioned in the above report may seem thrilling, but it is nothing more than that in the eyes of senior chip industry professionals. Because, the more crazy the rise, the more tragic the fall.

Although the current chip prices have dropped significantly, the prices of most chips are still higher than the normal prices when the chip supply and demand crisis broke out in 2020. Of the two STMicroelectronics chips mentioned above, the one that has dropped to around 600 yuan was quoted at less than 10 yuan in 2020, and the other chip has fallen to 20 yuan, but its normal price will only be lower. The normal price refers to a price state in which the market is stable and supply and demand are balanced.

As we all know, the chip industry is a naturally cyclical industry. Judging from the skyrocketing market in 2021, the price has soared from the early single-digit price to 200 yuan, and now it has fallen to 20 yuan. The ups and downs are a reflection of the decline of downstream demand over a period of time, and most general-purpose chips under mature processes have also experienced a cycle from shortage to relief.

The current drop in chip prices is also in line with the cyclical laws of the semiconductor industry. Generally speaking, the semiconductor industry will cycle between prosperity and severe recession, usually in a four-year cycle. A complete chip cycle generally includes seven stages: demand explosion, shortage and price increase, investment and expansion, gradual release of production capacity, demand shrinkage, overcapacity, and price drop.

The semiconductor industry entered a boom cycle in 2019 and its last boom cycle has lasted for three years. Since the beginning of this year, the semiconductor industry has shown signs of shrinking demand.

In June this year, a report from investment bank Jefferies Group stated that given the previous industry-wide chip shortage, repeated orders and overheated investment in expanding production, coupled with the current slowdown in demand caused by the COVID-19 pandemic and high inflation, "the semiconductor industry may experience an industry downturn in the second half of 2022 or early 2023."

It is obvious that since 2022, chips have entered a downward cycle. Of course, it is still just a downward cycle now, far from the bottom. So when will the bottom appear and to what extent will it fall?

Recently, the well-known analysis agency Future Horizons issued a data showing that the market may hit the bottom in 2023, which is next year. Compared with 2022, the market will drop by nearly a quarter (25%). The 25% drop is also the largest decline in the semiconductor industry since the Internet bubble in 2000.