Newsletter 14-20 November 2022

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There is a decrease in the amount of money invested in China. Sun Yuwang, chairman of the investment fund China Fortune-Tech Capital, said a few days ago that the number of investment projects approved by his company had almost halved from four months ago. In addition, 3,470 companies with the Chinese word for “chip” in their name or business scope were delisted between January and August 2022, a figure that exceeds the 3,420 such companies that closed in 2021, according to statistics from business database platform Qichacha. Semiconductor production in China contracted 26.7% in October compared to October 2021, the largest monthly decline on record.

BYD has abandoned plans to take its semiconductor subsidiary public. The Chinese electric car giant says it wants to wait to invest in additional semiconductor manufacturing capacity – although it is not clear where it will find the money.

Lontium Semiconductor, founded in 2006 by a former Intel engineer, has received approval for a listing on Star Tech, the Shanghai Stock Exchange’s specialist tech market. Hua Hong Semiconductor, China’s second-largest chipmaker, has been given the green light for a $2.5 billion IPO on the Star tech market.

Foxconn: labour shortage in Zhengzhou

The world’s largest iPhone factory, operated by Apple supplier Foxconn Technology Group, needs 100,000 workers to get back to full capacity in Zhengzhou. So far, 2,000 have been hired and they have to go through four days of quarantine before they can start work. Last month, a spate of cases of covid-19 at the site caused many workers to leave, complaining about the lack of care and food. Former PLA members were called in to bolster the site’s payroll. Apple reported delays in deliveries of the iPhone 14 Pro and 14 Pro Max, bad news as the holiday season approaches, normally a strong sales period.

Meanwhile, South Korea’s SK Hynix, the world’s second-largest DRAM chipmaker, said it would cut its capital spending in half in 2023 compared to 2022. Its net profit fell 66.7% in the three months to September this year.

TSMC has cut its capital expenditure plan for the full year 2022 for the second time this year. The total amount has been reduced to around $36 billion from the $44 billion planned at the beginning of 2022. The reasons for this are delays in equipment deliveries, a slowdown in the market and delays by a major customer.

US giant Intel said it would cut costs by $3bn next year after a 20% drop in revenue in the third quarter of 2022, and said it would delay some equipment purchases.

The semiconductor and electronics industries are facing a sharp drop in demand caused by uncertainties related to the health situation in China, the war in Ukraine and rising inflation. “The slowdown since the second half of 2022 has been like jumping off a cliff,” said Paul Peng, president of Taiwan’s largest display manufacturer, AU Optronics. The reduction in demand for displays affects the semiconductor industry, as the chips are widely used in displays and TVs. “Demand for smartphones is really, really bad, especially in China,” said Wallace Gou, president and CEO of Silicon Motion, a leading developer of NAND flash control semiconductors. “To be honest, I can’t remember a slowdown that has lasted this long. Let me be blunt and direct: demand is simply not good and not yet recovering. It will still take time to absorb existing semiconductor inventories in the supply chain.”  

Demand for PCs and tablets surged when the COVID-19 restrictions led to a surge in teleworking around the world. This drove up demand for chips. Despite a slowdown in demand, many electronics manufacturers continued to stockpile semiconductors to avoid the supply chain disruptions they experienced in 2020 and 2021. The result is that a supply shortage has turned into a glut without anyone noticing. “The weakness in [chip] demand was first seen in PCs,” said Michael Nayfa, managing director of Texas-based Barrow Hanley Global Investors. “The current weakness,” he said, “is starting to show up.

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