As everyone can see, since the second half of last year, the economic downturn has been transmitted to the chip industry, leading to a sharp decline in demand. Coupled with the impact of geopolitical factors, the global semiconductor downturn has accelerated. On the one hand, chip companies' performance has plummeted, and wafer fabs have also adjusted their investments; on the other hand, in order to save expenses, global technology companies, including semiconductor companies, have started a new round of layoffs.

Especially in China, for various well-known reasons, this sense of unease has begun to spread among the investment community and chip startups, and even chip engineers have felt this "chill."

Therefore, "surviving" has become the key word for the entire semiconductor industry. Everyone is also doing their best to get through this "winter."

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The chill spreads through the semiconductor industry.

From the financial reports of almost all semiconductor companies and their forecasts for the future, we all feel the chill.

According to a report from the Semiconductor Industry Association (SIA), the global semiconductor industry's sales in January 2023 totaled $41.3 billion, a decrease of 5.2% from $43.6 billion in December 2022, and an 18.5% decrease from the total sales of $50.7 billion in January 2022. Among them, the sales in Mainland China, the center of global electronic equipment manufacturing, have declined by an astonishing 31.6% year-on-year.

Data from WSWT statistics show that the downturn that began at the end of last year continued to spread in the first quarter of this year. As shown in the figure below, the revenue of the top 15 semiconductor suppliers in the fourth quarter of 2022 decreased by 14% compared to the third quarter of 2022. The largest decline was in memory companies, which fell by 25%; non-memory companies fell by 9%. Among the 15 companies, only 4 (Nvidia, AMD, STMicroelectronics, and Analog Devices) saw a slight increase in revenue, with an increase ranging from 0.1% to 2.4%.

In the first quarter of 2023, the outlook for top companies is generally bleak. The semiconductor industry is usually weak in the first quarter of the year, but most companies expect the first quarter of 2023 to be weaker than normal. According to the data from the nine non-memory companies that provided revenue guidance for the first quarter of 2023, they all expect a decline, with a weighted average drop of 10%. Among them, Intel is the most pessimistic, guiding for a 22% decline.

From this, we can see that the downturn in sales is becoming the biggest problem. In terms of equipment, the relevant statistics are also not very optimistic. Taking Mainland China, which has the most purchasing power in recent years, as an example.

The statistical data from the WeChat public account "Semiconductor Research" also shows that in the past three months, the import amount of front-end manufacturing equipment for semiconductors in Mainland China was $391.95 million, a decrease of 28.8% compared to the same period last year. Except for the import amount of other deposition equipment, the import amount of other equipment also decreased by different proportions; specifically, for thermal treatment equipment, the total import amount for October to December was $33.78 million, a year-on-year decrease of 22.9%, and a sequential decrease of 24.8%; the import amount of CVD equipment in the same period decreased by 22.3% year-on-year; the import amount of PVD equipment in the same period was $20.59 million, a sequential decrease of 43.8%; the total import amount of dry etching equipment in the same period was $71.93 million, a year-on-year decrease of 26.1%, and a sequential decrease of 34.1%.The International Semiconductor Industry Association (SEMI) released the global semiconductor equipment market forecast for 2022 in December last year, which also showed that although the equipment sales volume reached a new high in 2022, it is estimated to shrink by 16% in 2023 to $91.2 billion, and is expected to recover growth in 2024.

Affected by weak demand, high inventory levels are also becoming a major headache for the industry.

South Korean media recently pointed out that in the first two months of this year, Samsung Electronics' memory chip business suffered losses of up to $2.3 billion, marking the first loss for the South Korean giant in 15 years, and the loss is astonishing. The South Korean government even stated in an earlier statement that South Korea's chip inventory increased by 28% compared to a month ago, setting the largest increase since February 1996. Compared with a year ago, the inventory has increased by 39.5%.

The reason for the miserable situation of South Korean chips is closely related to the high dive of memory chips. According to the latest data from TrendForce, the average selling price of DRAM used for mobile phones and personal computers fell by 34.4% last quarter, compared with a decline of 31.4% in the third quarter of last year, it has not improved but worsened. As for NAND, which is regarded as the main product for data centers and enterprise customers, its performance is only slightly better than DRAM.

In addition to memory, chips such as MCUs, power management chips, CIS, mobile phone chips, and OLED driver chips are also facing inventory issues.

Under the impact of various factors, companies are trying various ways to cope.

Companies strive to "survive"

For semiconductor companies, survival has become their goal. Layoffs have become their first choice. According to incomplete statistics from previous semiconductor industry observations, semiconductor companies including Intel, Micron, Qualcomm, Synopsys, Arm, GlobalFoundries, and Lam Research have all announced layoffs. It is also rumored that this trend has spread to the domestic market.

In addition to layoffs, chip companies are also reducing expenses through various means.

First, let's look at the wafer foundries. "Price reduction" to attract customers has become another choice for them to get through the winter. Taiwan media recently reported that the price war in mature wafer foundry processes has expanded. The industry has heard that due to the utilization rate of production capacity not being as expected, wafer foundries such as UMC, Powerchip, and World Advanced have adopted the strategy of "as long as you come to place an order, the price can be negotiated." If customers are willing to place more orders, the discount range can reach 10% to 20%, which is larger than the previous price reduction.Taiwanese media further pointed out that previously, Samsung, the world's second largest wafer foundry, cut the price of mature processes by 10% to grab orders in response to the sluggish market. Now, in order to fill the production capacity, the Taiwanese factory has cut prices even more, which means that semiconductors have entered the inventory adjustment period, resulting in the continuation and continued deterioration of the trend of mature wafer foundry processes turning into a buyer's market. In addition to price cuts, cutting capital expenditures has also become another axe for wafer foundry expenditures to cope with the market downturn. Wafer foundry giant TSMC said at the beginning of this year that the company's capital expenditure this year will decline from last year's record high of US$36.3 billion, and is estimated to be between US$32 billion and US$36 billion, slightly lower than market expectations; and according to the Korea Economic Daily, Samsung Electronics, a South Korean technology giant that originally intended to maintain high-end capital expenditures, is also reported to reduce investment in wafer foundry, highlighting the sluggish demand for chips. Citigroup Global Markets even bluntly stated that with the decline in inventory prices, Samsung is increasingly likely to adjust its chip supply strategy by cutting investment; UMC has lowered its capital expenditure this year from US$3.6 billion to US$3 billion, a decrease of 16.7%; World Advanced estimates that the company's capital expenditure in 2023 will drop to NT$10 billion, a year-on-year decrease of more than 48%. For chip companies, in addition to price cuts, inventory reduction has become another "survival" skill for them. Taking MCU as an example, according to the author's understanding, consumer electronics MCUs now have extremely high inventories. Several domestic MCU practitioners revealed to the author that everyone is now involved in the game to accelerate inventory reduction. Taiwanese media reported earlier that Taiwan's MCU manufacturer Holtek confirmed that it would comprehensively reduce MCU quotes for distributors from February. The industry believes that as the price reduction storm continues, many MCU manufacturers will also be under pressure; as for OLED driver chips, an industry insider told the author that due to inventory reasons, the prices of these chips have been falling all the way and have almost fallen below the cost price; the pressure to destock memory chips is even more outspoken. In addition to chip companies, the "destocking" of end customers has also become another factor affecting market trends. As we all know, in the past three years, the epidemic has affected the supply chain, causing many terminal manufacturers to "stock up" to cope with this uncertainty. In the case of sluggish market demand, terminal manufacturers no longer place orders with chip companies. When the analog chip giant Texas Instruments released its fourth-quarter financial report at the beginning of this year, it was famous that in the fourth quarter of last year, customers canceled more orders. This is mainly because customers tend to cut inventory. They expect that the decline in demand this season will be weaker than the seasonal decline in demand. "Customers are doing what they have been doing for decades and will continue to do so. They have built up a bit of inventory. We will see how long it takes to resolve this." Texas Instruments CFO said in an interview with the media. Although everyone is actively destocking, according to Taiwan Economic Daily, an insider explained that the current destocking is still slower than originally estimated. For example, the original estimated inventory destocking speed is to purchase 0.5 months of goods, and sell 1 month of goods, which can gradually reduce 0.5 months of inventory; but now the actual situation is to purchase 0.6. This undoubtedly brings new pressure to chip destocking. The above survival method is for chip companies with products. But as you can see, in the past few years, many start-up chip companies have emerged around the world, especially in China. For them, how to make ends meet in the current environment is their foundation. This is mainly viewed from two dimensions: How do some chip companies that already have products survive in this environment by investing, shipping, and financing? How can companies without products control the expansion of their team size? How to survive by financing?The Engineers' Strategy of Lying Low

In the current downturn of the semiconductor industry, engineers are undoubtedly another group that has been severely impacted.

In the past few years, due to the influx of startup chip companies, coupled with the optimistic outlook from the capital market, the competition for talent among chip companies has reached a frenzied state. The semiconductor industry observation in the previous article "Short of People, Our Front Desk Has Moved to the Layout" also described this situation. Statistics from the talent solution company Hudson also show that the chip industry had the highest salary increase for job-hopping in 2022, with an average increase of over 50%.

However, entering 2023, under the dual blow of the capital market's wait-and-see attitude and the sluggish terminal market, everything seems to be returning to normal. It must be emphasized first that the "normal" we are talking about does not mean that the salaries of chip engineers have fallen, but rather that the frequent job-hopping of chip talents, and even the phenomenon of crossing industries, has begun to decrease.

The emergence of this situation is, of course, first related to the demand for talent by companies. There is no need to elaborate on foreign chip companies, as there have been many reports of companies freezing recruitment and layoffs. In terms of domestic chip companies, according to the author's knowledge, many chip companies have frozen recruitment, and some companies have even introduced regulations that only allow people to leave but not to enter, mainly to tighten their belts for the winter.

From some previous reports, we have also seen that some chip engineers have raised their salaries by frequently changing jobs, and this is not an isolated case. But in the current environment, these phenomena are also not rare. Some engineers also frankly stated in their communication with the author that in this market, protecting their own jobs and safely getting through the winter is the primary task.

However, even in the current sluggish environment, HR also said that it is difficult to find high-quality engineers in the market, which also indirectly indicates that if a chip engineer has excellent strength, there is no need to worry at any time. In addition, this situation also confirms the previous cautious attitude of personnel on the one hand; on the other hand, it also reflects the determination of chip companies to retain important forces to meet the next wave of recovery.

As Malcolm Penn said in his analysis article, this year's semiconductor will inevitably decline by 22%. However, we don't need to panic or despair. Because past history has shown that semiconductors are such a cyclical industry, and each "collapse" of semiconductors is actually a good opportunity to gain market share. For this reason, Malcolm Penn suggests that it is time to roll up our sleeves and do anything necessary to survive in the short term, but he advises us not to damage long-term interests.

"Any action taken now needs to be clearly and firmly remembered with the inevitable improvement in 2024. Now is not the time to panic, but to take decisive action, keep a cool head, and take the initiative. It is time to prepare for the inevitable 17th industry recovery that is coming." Malcolm Penn said.