Hong Kong, 3 January 2022 – The wider electronic component industry has proved to be one of the clear winners of the Covid-19 pandemic, thanks largely to unprecedented demand from across the world and price hike. However, with semiconductor being the largest segment of the wider component market which is set to enter a period of adjustment following a few years of growth, what does the future hold for the entire supply chain and key players in Asia Pacific? Euler Hermes dissects into the sector’s 2022 outlook in a report published today.
The current semiconductor cycle has been firing on all cylinders since the industry emerged from its worst recession in 2019 (-12%). Global sales is expected to reach all-time high in 2021 at US$553bn, representing an exceptional year-on-year increase of 26%. Volumes have been driven by: 1) unusually strong demand for consumer electronics (PCs, smartphones, audio/video equipment etc, accounting for 80% of final semiconductor sales); 2) price increases due to tighter supply/demand mechanism; and 3) product mix has further improved due to the introduction of the higher priced, new generation chips using the 5nm manufacturing node.
However, abovementioned factors are expected to cool down from 2022 as final demand growth normalizes while new production capacities are coming online in an accelerating manner. Sales should, nonetheless, grow by another 9% and cross the US$600bn mark for the first time in history. Furthermore, 2023 marks the fourth year of its current growth cycle and is likely to reach a plateau in sales - history shows that semiconductor cycles generally last four to five years followed by a period of adjustment of twelve months on average.
Aurélien Duthoit, Sector Advisor at Euler Hermes, says, “We expect the following three factors will set the tone for 2022 onwards: 1) normalization of demand in key final markets such as computers, servers and smartphones; 2) unpredictable and random events hurting key semiconductor manufacturing locations such as Taiwan and South Korea; and 3) new developments in the US-China Tech Cold War which prevent semiconductor technology specialists to sell to Chinese companies. While we do not anticipate Asia Pacific’s domination in semiconductor manufacturing will be impacted in the short term, these factors will most likely contribute to more balanced trade flows in a more distant future.”
On the flip side of industry growth, insolvencies in the electronics sector have been on an upward trend since 2015, tallying about 100 significant insolvency cases with a total turnover of US$32bn. Since 2015, Asia Pacific has accounted for 59% of global insolvencies in the electronics sector while China and Japan produced nearly two-thirds of all cases combined.
Matthew Wells, Regional Commercial Director at Euler Hermes Asia Pacific, explains, “The upward trend in sector insolvencies is consistent with the fast-paced expansion of the industry, its capital and R&D intensive nature as well as fierce competition across many product segments. Looking ahead to 2022, the tightening of the US monetary policy and China’s ambition to lead in the technology space will contribute to higher insolvency risks in the region.”