2022: A Year to Remember in the Semiconductor Industry

2022: A Year to Remember in the Semiconductor Industry

The semiconductor industry has seen its share of unexpected turmoil over the last several years and 2022 was no exception. From shortages in inventory to excesses in inventory, inflation, and a push for domestic reshoring, we have had it all.  Never before has the semiconductor industry been thrust into the political spotlight as it was in 2022 with the signing of the CHIPS Act, the largest government intervention in history of its kind.  It was a wild ride, but as always, the chip industry is the most exciting place to be.

The Shortage

The industry started the year with “the chip shortage” on everyone’s mind. The onset of COVID-19 in 2020 triggered a precipitous drop in demand and factories shutdown. After the initial shock of the pandemic subsided, consumer spending exploded creating a V-shaped recovery. This led to one of the largest shortages in history. Demand far outweighed supply and some industries such as the automobile were feeling the impact of the chip shortage throughout 2022.  Some say the chip shortage for the automotive industry could last through the end of 2023 or well into 2024.

The Excess

There is a lot of discussion as to the true reason for inflation in the US, but most can agree it is in part due to supply chain issues, excess demand, and production costs. The part of inflation that is hotly contested is the impact of the COVID-19 stimulus packages. Either way, inflation is the underlying reason consumer demand dropped in the in the second half of 2022. Along with the drop in demand, many chip companies cut production to avoid excess inventory from piling up.  Unfortunately, inventory did pile up, but not across the board.  The automotive industry is still undersupplied – as noted above.  It will take time for excess inventory to be sold and shortages to stabilize.  How long?  Most people agree it will take two to three quarters before inventories level out.  However, if 2020 is an indicator of 2023 – anything can happen.

The Great Reshoring

If the recent chip shortage taught us anything, it taught us offshoring is not the answer.  Since the 1990s, the majority of US semiconductor manufacturing was moved to countries with lower labor costs in Asia.  However, over the past couple of years, unforeseen interruptions such as COVID-19, exposed the US overdependence on other countries to supply semiconductors.  This year the $52B CHIPS Act was signed into law with the intent of 1) reducing the risk in the semiconductor supply chain 2) boosting economic competitiveness and creating domestic jobs 3) protecting chips from being sabotaged in the manufacturing process.  In other words, the CHIPS Act is helping semiconductor companies with funds and tax incentives to return manufacturing back to the US.

The Investment

According to Semiconductor Industry Association (SIA), since the introduction of the CHIPS Act in 2020 through its enactment in 2022, companies in the semiconductor industry have announced many projects aimed at increasing manufacturing in the US.

Here are some highlights of announcements spurred by the CHIPS Act:

• Over 40 new semiconductor ecosystem projects announced across the U.S., including the construction of new semiconductor manufacturing facilities (fabs), expansions of existing sites, and facilities that supply the materials and equipment used in chip manufacturing
• Nearly $200 billion in private investments announced across 16 states to increase domestic manufacturing capacity
• 40,000 new high-quality jobs announced in the semiconductor ecosystem as part of the new projects, which will support many more jobs throughout the broader U.S. economy