With price cuts and hiring freezes, chip companies face difficult times

Terminal market demand continues to be sluggish, and the overall price reduction of wafer foundries is not yet obvious. As a result, chip costs are still at a high level. IC design companies are facing a dilemma of being "attacked from above and below". However, in order to reduce inventory and maintain supply chain relationships, quotations for some cases have Concessions have to be made, and gross profit margins are facing the challenge of being squeezed.

Senior executives in the IC design industry pointed out that now they can only hope that more inventory can be removed during the traditional peak sales seasons such as Double 11, Black Friday, Christmas and next year's Lunar New Year, so that the supply chain can regain its strength as soon as possible.

In terms of wafer foundry prices at this stage, it is understood that some Chinese and two Taiwanese companies have lowered prices, but some are still holding on, either asking customers to increase volume in exchange for lower prices, or it is rumored that TSMC will still increase prices as planned next year. , which puts considerable cost pressure on relevant IC design companies.

However, in terms of quotations for customers, some IC design factories have to cooperate with tearful price cuts in order to prevent certain customers from being ignored. It is pointed out that the quotations of small-size driver and touch integrated IC (TDDI) from Taiwanese manufacturers have dropped by more than 30% compared with the beginning of the year, exceeding the cost reduction. Some power management IC manufacturers have frankly admitted that some products are facing price-cutting competition from rival manufacturers regardless of cost. The quoted price is even lower than our cost price. In order to take into account the competitive situation, there is considerable pressure on gross profit.

The semiconductor market is in poor condition. TSMC President Wei Zhejia publicly warned at the French press conference last week that the overall semiconductor industry may fall into recession in 2023. It is understood that the supply chain assessment this quarter may be the worst in recent years. IC design factories are tightening their belts. Some manufacturers have cut their film production all the way to the first quarter of next year. It is rare to freeze personnel and suspend recruitment of new employees. Blood.

Talent is the most important foundation of the IC design industry. In the past, when faced with the aggressive poaching by mainland companies, Taiwanese manufacturers spent a lot of money to find people. Now, some small and medium-sized IC design industries have rarely frozen personnel. This highlights that the semiconductor industry is in a biting cold wind and the industry can only Try to cut back on expenses to preserve cash, and cut down on clothing and diet to survive the boom and winter.

Since R&D is the foundation of the IC design industry, in recent years the IC design industry has successively implemented structural salary increases or substantial annual salary increases to retain talent. In the past, most of the industry's tone was to maintain normal recruitment as much as possible, but entering the second half of the third quarter , the situation began to change.

Recently, more than one medium-sized IC design factory has openly admitted that it is basically in a state of "doing nothing to fill the gap". Although it will not admit it to the outside world, suitable candidates suddenly appear in fields where it is already difficult to find people unless they are usually recruiting, such as Very scarce R&D personnel will be recruited, and this should account for a very small proportion of the overall workforce.

Unnamed IC design industry insiders admitted that due to poor sales in the end market, customer orders have decreased, leading to a gradual increase in inventory levels. They have successively negotiated with wafer foundries to reduce wafer production from the second quarter. Some IC design factories have started to reduce production from the second quarter. It was only in the third quarter that I started cutting orders.

Considering that the chip production cycle is at least about three months, it will take at least one quarter, or even two quarters, to go from reducing production to declining output.

Some IC design industry members mentioned that orders for all IC items that cannot be digested in the short term will be canceled first, otherwise the unsold ones will continue to be produced, and the overall inventory will continue to increase. In addition to reducing orders from other foundries first, we would also try to keep orders from TSMC, but we couldn't hold on, so we had no choice but to cut them, regardless of whether we would be able to return to wafer production in the future.

In this wave of IC inventory adjustments, driver IC factories are one of the hardest-hit areas. Relevant Taiwanese factories pointed out that they will continue to reduce production in the fourth quarter and are expected to drop again in the first quarter of next year. This means that IC output will continue to decline quarter by quarter until the second quarter of next year, but the industry cannot be sure how much the overall inventory level will decline, because no one is sure of the sales situation.

Some microcontroller (MCU) industry players also said that they will need to correct all the way until the inventory level drops to a certain level before the wafer production volume is likely to pick up again.

Some power management IC manufacturers also revealed that some customer orders have been postponed one quarter to next year, and it is estimated that inventory may not return to normal levels until the second quarter of next year. Therefore, the amount of film production at this stage will indeed not be as large as the original plan, but it cannot be revised to zero. If there is no film production at all, the damage will be minimized.

The demand for electronic terminal products is sluggish, and the supply chain from semiconductors to systems is facing the problem of excessive inventory levels, and the depletion process may extend to the first half of next year; TSMC even warned that the greatest impact of inventory adjustments will be in the first half of next year, and the inventory of the IC design industry Removing pressure will also affect the demand for back-end IC packaging and testing.

Looking forward to the market situation of the electronic technology industry next year, Hong Chunhui, senior industry consultant and director of the Industrial Intelligence Institute (MIC) of the Information Council, pointed out that demand has not yet recovered, inventory problems of varying degrees are spreading from downstream to upstream of the supply chain, and the speed of depletion is slow. , which may last until the first half of next year.

From the perspective of days, MIC analyzed that in the second quarter of this year compared with the same period last year, the inventory days of various types of companies increased by an average of 15.5% to 25.1%. Among them, the inventory days of semiconductor companies increased the most with 100.1 days, followed by electronic component companies with 98.3 days.

The Allianz Investment Taiwan stock team said that inventory adjustments will begin in the third quarter, especially related to personal computers and notebook computers, and the inventory adjustments are expected to end in the first half of next year.

MIC industry analyst Yang Kexin pointed out that the negative factors of the external environment have not been eliminated, the consumer market has poor buying sentiment, weak efforts to attract goods, and the momentum of customer stocking has slowed down. From terminals and system manufacturers to semiconductor chip production and sales supply chain players, everyone is facing inventory The problem of excessive water levels and inventory depletion will affect the performance of the semiconductor market next year.

Observing the semiconductor field, MIC analyzed that the production and sales of semiconductor chips are restricted by the long-term contract mechanism. Repeated and excessive orders often adopt practices such as delayed delivery, which is not conducive to the adjustment of the semiconductor supply chain. Inventory adjustments are expected to continue until the first half of next year.

Wei Zhejia, president of TSMC, the leading wafer foundry, pointed out that factors such as inventory adjustments in the semiconductor industry will affect TSMC’s overall utilization rate performance from the fourth quarter to the first half of next year. He expects the high point of semiconductor supply chain inventory to peak in the third quarter of this year. It started to decline in the fourth quarter, and it is estimated that it will not return to a healthy level until the first half of next year. The biggest impact of inventory adjustment factors will be in the first half of next year.

MediaTek, a major chip design company, predicts that customer inventory adjustments may last two to three quarters; wafer foundry World Advanced recently stated that customers will continue to adjust inventory in the fourth quarter, and it does not rule out that it may continue into the first half of next year.

Observing IC design, memory, IC sealing and testing, and distributors, Yang Keyin analyzed that the current semiconductor industry inventory adjustments, IC design and memory industries are facing declining demand and oversupply issues, and IC design companies are facing pressure to reduce inventory, which will also affect the backend. The demand for IC packaging and testing will be detrimental to the overall operation next year; IC distributors have also seen a significant increase in inventory turnover days.

From a product perspective, demand for panel driver chips, consumer power management chips (PMICs), general-purpose and consumer microcontrollers (MCUs) is weak, and inventory levels of related manufacturers continue to rise.