Home / Technology / News / Global chip industry stares at slowdown; India investments may continue
- Experts say inventories have risen to very high levels due to subdued consumer demand
NEW DELHI : Chipmakers such as Taiwan Semiconductor Manufacturing Company (TSMC) and Hon Hai Precision Industry Co., better known as Foxconn, may be forced to rethink their investments in the coming quarters as they take a cautious stance to respond to global headwinds such as rising inventory coupled with concerns of rising inflation and geopolitical tensions.
TSMC reported on Thursday an 80% jump in net profit for the September quarter at $8.8 billion. However, even as the results beat market estimates, chief executive C.C. Wei said that net capital expenditure for the rest of FY23 has been cut by 10% to $36 billion. He said also that there could be a “likely decline” in the global semiconductor market, and TSMC is “not immune” from the downturn despite its dominant market position.
Foxconn, too, advised caution in its outlook for the rest of the year while announcing its September sales. Even as it reported record monthly revenue of $25.9 billion last month, a sequential rise of 83%, the company cited “the dynamics of inflation, the pandemic, and the supply chain” as the key factors of concern.
Industry analysts say that the reduced capex plan among global supply chain makers is not unexpected since inventories have risen to very high levels due to subdued consumer demand. Navkendar Singh, associate vice-president of client devices at market researcher International Data Corporation (IDC) India, said the slowdown projection is in line with tapering demand globally. “Even enterprises are spending cautiously, and orders are getting delayed or cancelled, as companies put a freeze on hiring and rethink growth plans,” he said.
The demand slowdown has been projected for the immediate quarters in the global information technology (IT) services sectors, too. While Indian software services majors Tata Consultancy Services, Infosys, HCL Technologies and Wipro posted revenue growth, analysts noted a drop in new and active deals among most IT firms indicating a cautious stance among enterprises.
Stakeholders in the Indian semiconductor industry are, however, confident that there would not be a direct impact on India’s ability to attract investments in its fledgling semiconductor industry.
Vivek Tyagi, chairman of the India Electronics and Semiconductor Association (IESA) said there could be some slowdown in investments by global chipmakers in the coming quarters.
“However, it is important to note that semiconductor investments in the country would not come off the back of cutting-edge chips, which is where the slowdown would be. For instance, the automotive sector in India has a demand for chips that are between 28nm (nanometer) and 90nm die size— and this sector is likely to continue with a simmering demand going forward,” he said.
Tyagi also said that the Indian semiconductor industry is presently at the stage of attracting investments for chip making factories, which are largely long-term efforts. “As we see it, the demand slowdown and caution in expansion of investments would remain for another 18 to 24 months, following which the global supply chain would stabilize. India could attract assembly, testing, marking and packaging (ATMP) and outsourced semiconductor assembly and test (OSAT) facilities,” he said.
The Indian government’s production linked incentive (PLI) plan for semiconductors offers a 50% cash benefit for firms that invest in semiconductor facilities, without a minimum cap on investments.
Tyagi said that this, coupled with state-wise land and employment benefits, could see India continuing to receive investments for the semiconductor sector even if it is at a slightly reduced pace.Rajeev Khushu, advisor and board member of IESA, said Bengaluru already has over 80 companies associated with semiconductor manufacturing.
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