Chip Shortages Might Finally Ease. For Asia, That’s a Mixed Bag.

Good news: Chip shortages of the past two years may be easing. Still, it’s bad news for Asian economies and companies along the tech supply chain. Contrary to chip demand is currently gathering forces in both China and the US

The slowdown in the Chinese economy and the amazing momentum in the US technology sector will reduce demand for electronics by both consumers and businesses. Shipments of smartphones and personal computers have begun to decline year-over-year. According to IDC, smartphone shipments fell 8.9% year-on-year while PC shipments fell 5.1%.

In most of the world, consumers are shifting their spending from goods to services as economies reopen. Inflation concerns could drive them further. China is facing a more generalized impact on income and consumption from its harsh anti-Covid policies, which led to much of Shanghai being closed this spring. According to IDC, smartphone shipments in China fell 14.1% in the first quarter.

Global chip shortages are affecting how quickly we can drive a car or buy a new laptop. The WSJ visited a manufacturing plant in Singapore to see the intricacies of chipmaking and how one manufacturer is trying to overcome shortages. Photo: Edwin Cheng for The Wall Street Journal

Across the Pacific, a shift in US tech stocks could lead to a drop in IT equipment spending. Funding for startups is running out. Spendthrift tech companies may need to start tightening their pockets and looking at their profits. Server chips for data centers in particular have been a huge source of growth for chipmakers over the past few years, but lower spending from tech companies could change that.

There’s a catch: The semiconductor shortages, which have been a headache for the global economy for the past 18 months, may finally start to ease as demand accelerates. Inventory days rose to 53 days in the first three months of this year, from 42 in the previous quarter, according to Credit Suisse, which tracks more than 200 companies in the technology supply chain. Inventories have trended up since the pandemic as companies stock up to confront production and logistics challenges. However, an eventual drop in demand with companies running high on inventories could hurt suppliers later this year.

East Asia, where most of the tech vendors are located, will feel that pain acutely. Recent shutdowns in Shanghai and other Chinese cities have disrupted both supply and demand for nearby economies such as South Korea and Taiwan. South Korea’s exports rose in May, but that was partly due to fewer working days that month last year. Adjusting for that, daily export growth will decelerate further from April, especially for key exports such as semiconductors and flat panel displays, according to Morgan Stanley. The reopening of Shanghai could provide a short-term boost, but the weakness in Chinese consumption will persist as long as the country adheres to some iteration of the zero-Covid policy. Any significant change in that is unlikely to happen until early 2023 at the earliest.

Founding Leader of Taiwan Semiconductor Manufacturing Co.

may weather a better slowdown in demand as it has captured market share from smaller players with its technology leadership and strong pricing power. Companies whose products are more sensitive to the industry’s pricing cycles — like memory chips for Samsung Electronics and SK Hynix — will be more affected.

Asian technology suppliers have benefited from strong consumer demand since the early days of the pandemic. There hasn’t been any thunder yet, but the sky will be a little darker this year.

Write letter for Jacky Wong at jacky.wong@wsj.com

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https://www.wsj.com/articles/chip-shortages-might-finally-ease-for-asia-thats-a-mixed-bag-11654167612?mod=rss_markets_main Chip Shortages Might Finally Ease. For Asia, That’s a Mixed Bag.

Edmund DeMarche

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