(Bloomberg) — A year-long boom in global semiconductor demand that has supported key Asian exporters still has room to run, according to a set of indicators tracking the industry.
The economies of South Korea and Taiwan, both major chipmakers, have held up better than many others during the pandemic thanks to surging purchases of tech products. An extension of the uptrend would provide a further fillip to the recovery, helping justify the Korean central bank’s early dialing back of emergency policy settings.
Still, with pandemic-related demand anomalies set to normalize, a strong outlook for the industry has been countered by budding doubts regarding the sustainability of the boom, especially for the memory sector that Korea excels in. Morgan Stanley last month said “winter is coming” in the memory segment as supply catches up with demand.
Here are some indicators shedding light on the strength of global demand for semiconductors.
Chip Equipment
The latest figures by global semiconductor associations show the momentum is holding up in the worldwide sales of chips and the equipment needed to produce them. Moves by companies to expand chip-making capacity are a leading indicator of more sales to come.
Shares of chip makers from Samsung Electronics Co. to Taiwan Semiconductor Manufacturing Co. dipped last month as some questions were raised as to whether the boom can continue. TrendForce expects the market to gradually move into a state of oversupply as buyers hold off on more purchases of dynamic random access memory.
“We may experience a bit of bad weather, but winter is not coming,” said Mike Howard, vice president of DRAM and memory research at Yole Développement. “Fundamental demand isn’t bad. The supply chain problems are having an impact on supply-demand balance and the excess inventory is also distorting things, but our outlook into next year points to a market that will get under-supplied again.”
Chip Prices
The global chip shortage has led to to a pickup in overall prices that has yet to slow. The value of Korea’s semiconductors exports, for both memory and processors, has been on a steady rise. Thursday’s report showed chip shipments growing at a slower clip in the first 20 days of September, but that was partly due to a higher year-earlier base as well as fewer working days.
The trade ministry said earlier this month it expects the rally to continue for some time as demand outweighs supply.
In Taiwan, which concentrates more on logic processors than memory, total exports rose to a record in August, led by semiconductors and other electronic equipment.
Chip Crunch
Meantime, the shortage is showing few signs of improvement. Chip lead times, the gap between ordering a semiconductor and taking delivery, increased by six days to about 21 weeks in August from the previous month, according to research by Susquehanna Financial Group.
Inventories, Sentiment
Another indicator of chip demand is the level of stock at suppliers. Inventories at Korean manufacturers rose in July after falling for five straight months, but remained at a level seen during a previous chip boom in 2017.
At factories producing chips, sentiment also remains positive. The global electronics purchasing managers’ index edged down in August but still signaled “strongly expansionary operating conditions,” according to IHS Markit.
“Anecdotal evidence pointed to ongoing increases in demand for semiconductors from around the world,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit. “The near-term pricing outlook for the remainder of 2021 for semiconductors and components is that supply shortages are likely to continue to translate into price escalation.”
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