Material Market Update – Q2-2023

Electronic Components: Market Sales & Forecasts

Worldwide semiconductor revenue increased by 1.1% in 2022 to a total of $601.7 billion. This was an increase of $6.7 billion on 2021. Although an increase, the plateauing of sales revenues backs up previous reports of the industry slowing down.

Continued decline in demand for consumer electronics, which is linked to Macroeconomic factors is the drive behind the forecasted decline in semiconductor revenues for 2023. This decline continues to drive a surplus stock scenario (in general terms) highlighted in Figure 1. It is important to understand severe surplus will be evident in the Memory and Micro markets which are more closely linked to consumer electronics. Analog and Logic stocking will improve, but most likely to a balanced position as opposed to a surplus.

Advancements in new technologies, supported by an increase in available capacity will see an increase semiconductor forecasts for 2024 and beyond. Figure 2 gives an indication of expected forecasted and it is expected that this will create constraints in the market from Q4-2023 as the up-turn in demand switches on.

Semiconductor Inventory Index, 4Q02-4Q22 – Gartner

Semiconductor Revenue Forecast, 4Q22

Electronic Components: Wafer Fab Update

As reported in our Q1-2023 update 2022 saw record investments by semiconductor manufacturers. The U.S. CHIPS Act alone has already sparked USD 200 billion in private investments. All the major manufacturers have invested, as figure 3 highlights.

The European Chips Act, announced in 2022, is still yet to be given the green light by the European Union. However, it is expected in the coming weeks and will give the go ahead to a €43 billion plan to help the European semiconductor industry catch up lost ground on the Asia and US regions.

All the above is good news, however we expressed tones of caution in the previous market update with regards to a CAPEX correction in investment due to the downturn. Latest figures indicate a 5% decrease in spending.

Finally, it is important to acknowledge that many of the $ billions being invested are being directed into new / smaller technologies (5 nm – 10nm). Older technology products will continue to lag as manufacturers encourage developers towards the newer technology nodes.

Electronic Components: Wafer Fab Update

Table

Electronic Components: Supply Projection

In our last update we reported that Foundry Utilisation rates in global wafer fabs continue to decline and are projected to pass through the 85% barrier, which is regarded as the point as which we move from normal supply to moderate or severe surplus. This projection has been realised and level have dropped to 80-81% utilisation.

While the promise of Stock surplus is great for our market(s), it should be tempered with caution as it is commodity based, and figures will be heavily skewed with the major decline in the Memory market..

Table

Electronic Components: Pricing and Lead Time Trends

With regards to pricing, our messaging remains the same as our last update. Market updates from our key suppliers show that pricing trends are starting to level off for some commodities, however this softening is not expected to lead to wholesale price reductions as we move through 2023 and into 2024. In fact, due to macroeconomic factors a high level of volatility still exists today, and pricing could change at any moment.

Pricing Headlines

“TSMC: The company plans a 10-20% price hike for its 8-inch foundry services, with new prices effective in Q3-2022”
“GLOBAL FOUNDRIES (GF): The company plans to raise prices for some of its manufacturing processes by up to 8% in 2023. Samsung Electronics is also looking to raise its good die prices as much as 20% as the foundry improves sustainability in its 5nm and 4nm process manufacturing yields”
“MCU: Prices rose more than expected in 2021. They are expected to continue rising in 2022 and unlikely to drop significantly before 2026”
Source: Arrow UK

To secure the best pricing please place orders as early as possible, and where program funding is available it is recommended to drive inventory into stock at the earliest opportunity.
Allocation still exists for some manufacturers and/or technology types, so we advise customers to provide the clearest visibility of program nature and special contractual exceptions which can be applied.
In general lead times are starting to improve but remain very high in comparison to pre pandemic levels.

Electronic Components: Pricing and Lead Time Trends (continued)

Electronic Components: Pricing and Lead Time Trends (continued) 1

Electronic Components: Pricing and Lead Time Trends (continued) 2

Printed Circuit Board Update

Pricing within the sector remains stable through Q1-2023. In general laminate pricing decreased gradually through 2022 and has now stabilised.

Although transportation costs have decreased, they have not returned to pre-pandemic levels. Coupled with high energy costs in Europe a wholesale decrease in PCB pricing is not expected in 2023.

Material lead times continue to be stable, with most material available in 15 to 20 working days. All PCB suppliers recommend forecasting demand for raw materials to ensure programs can continue to ride any market volatility. Flex materials remain a minor concern, with lead times stable but extended.

Manufacturing Lead Time will vary from site to site. Depending on the complexity of design typical lead times remain anything from 4 – 12 weeks.

Metalwork Update

Aluminium, Steel and Tin markets ended the quarter approximately where they started indicating a greater degree of confidence that current pricing levels are in a period of stability.
Copper has performed differently, with a jump in January pushing pricing slightly upwards. This new level was then sustained through Q1-2023.
Availability of raw materials is not considered a risk this time.

Metalwork Update

Macroeconomics

Between 2020 and 2022 there were no shortage of global events that contributed to the challenges for macroeconomics. Some events have been and gone, with others looking like they are going to be with us in the medium to long term. Below is an overview of some of the events that have contributed to the volatility we see today in the market we serve.

Ukraine conflict

The immediate effect of the Russian invasion of Ukraine was a sharp rise in the prices of commodities. Those issues were further exacerbated by the restriction of movement of goods through the region. Economic sanctions put in place also added to the strain on supply chain.

With Europe getting between a quarter and third of its oil and gas supplies from Russia, there was an immediate impact on European pricing.

Globally, Russia and Ukraine were leading global producers of nickel, copper and iron – which put immediate pressure on supply chains for these raw materials

This event is a main contributory factor to the rise in interest rates during 2022 and now into 2023.

At time of writing, Ukraine has been able to position itself to start exporting energy into Europe, which may enable a softening of inflation through cost reduction of goods and services.

Energy Crisis, Inflation, and Interest Rates

Figure 20: Source – https://tradingeconomics.com/united-kingdom/electricity-price

In the previous market update the impact of the Russian invasion in Ukraine was front and centre, highlighting that energy pricing had risen to levels never seen before. As a result, inflation levels were generally between 3-12% in the G20 countries, an indication that consumer confidence has been directly impacted.

Through Q1-2023 a levelling off and then slight reduction in inflation rates, has provided local and global economies a level of confidence that stability is just around the corner. Figure 20 provides an indication of UK Electricity pricing returning to levels seen prior the Russian invasion of Ukraine. The hope is that a reduction in energy costs, will stimulate the market for the next growth period forecasted.