A Look At The Shifting State Of The Semiconductor Market

By John Oncea, Editor

The semiconductor shift from severe shortages during the COVID-19 pandemic to a potential oversupply today highlights the cyclical nature of the market and the complex interplay of factors affecting supply and demand.
The semiconductor industry is currently experiencing a shift from a major shortage during the COVID-19 pandemic to a potential chip glut in certain sectors due to various factors including supply chain disruptions and strategic industry responses.
In addition, companies have overstocked chips due to a slowdown in demand for electronics like smartphones and laptops leading to challenges for memory chip manufacturers like Samsung and Micron. This is partly due to increased production capacity and a cooling off in consumer electronics demand, although geopolitical tensions and export restrictions still pose potential risks to the supply chain.
From Semiconductor Shortage To Too Many Chips
During the COVID-19 pandemic, the semiconductor industry faced unprecedented challenges. According to the World Economic Forum, lockdowns and remote work led to a surge in demand for electronic devices, straining the supply of microchips essential for products like smartphones, computers, and automobiles.
Todd Burke, president of global business development at electronic components distributor Smith, notes that even three years later, the industry was still in shortage mode, according to SupplyChainBrain, with manufacturing disruptions and logistical challenges hindering production and exacerbating the shortage. The complexities of semiconductor production, with lead times exceeding four months for established products and up to ten months for capacity increases, made rapid adjustments difficult.
As the world adapted to pandemic conditions, however, the semiconductor industry took measures to address the shortages, writes Wired. Manufacturers ramped up production, and significant investments were made to expand capacity. For instance, companies like Intel announced substantial investments in new facilities to boost production.
Today, the situation has reversed, with Burke saying, “Everyone is sitting on excess inventory right now.” This shift is particularly evident in certain sectors, such as the automotive industry, where electric vehicles (EVs) are now “piling up on lots across the nation” due to decreased demand and an oversupply of chips.
Not All Sectors Are Created Equal
Even though analysts suggest the industry’s rebound has boosted capacity to the extent some foresee an oversupply, the shift from shortage to potential glut is not uniform across all sectors of the semiconductor industry, Bain & Company writes. Cyclicality in the sector is normal, and it’s been leveling out over time as the end markets for chips have broadened and suppliers have consolidated.
Nonetheless, the balance of supply and demand could remain bumpy in areas such as bleeding-edge, leading-edge, and super-lagging chips with some areas experiencing strong demand while others are facing oversupply.
For example, the automotive industry, which was significantly impacted by the shortages, has seen a recovery in chip availability. In contrast, sectors like consumer electronics may experience different dynamics based on varying demand patterns and production capacities.
Geopolitical Concerns And The Future Outlook
Despite the current trend toward oversupply in some sectors, industry experts caution against assuming this will be a long-term situation. According to Supplyframe, several factors could influence the semiconductor market in the coming years:
- Inventory Rebalancing: Many technology companies anticipate rebalancing semiconductor inventory in 2025, which could help stabilize the market.
- Continued Challenges: The semiconductor supply chain is likely to face ongoing constraints due to factors such as infrastructure costs, geopolitical events, and talent shortages.
- Long-Term Demand Growth: The increasing adoption of AI, IoT, and other advanced technologies is expected to drive long-term demand for semiconductors.
Geopolitical factors also have played a role in the industry's dynamics, writes Time. The concept of friendshoring, where companies diversify their supply chains to politically aligned regions, has gained traction.
For example, Penang, Malaysia, has become a significant hub for semiconductor production, attracting investments from major manufacturers. This strategy aims to reduce reliance on any single region and mitigate risks associated with geopolitical tensions.
While the semiconductor industry has made strides in addressing the challenges posed by the pandemic-induced shortages, the shift toward potential oversupply in certain sectors underscores the need for strategic planning and adaptability. Companies must navigate the complexities of fluctuating demand, supply chain management, and geopolitical considerations to maintain stability and growth in this critical industry.
Looking ahead, the semiconductor market is likely to remain volatile in the short term as it adjusts to these new conditions. However, the long-term outlook remains positive, driven by the increasing importance of semiconductors in various technologies. As Burke suggests, 2025 “could be a very interesting year for the semiconductor space,” with the potential for new market dynamics and opportunities to emerge.