Are we heading for over capacity again?
1 min read
The semiconductor industry is probably the one sector that defies conventional economics by continually failing – or at least being unable – to match supply with demand. The consequence is a long history of boom, followed by bust. Are we set for another round?
Demand for semiconductors is booming, with sales likely to be up by 30% over last year. Now, according to market researcher Gartner, sales of semiconductor manufacturing equipment are set to grow by 113% this year.
Over the last couple of years, the industry has got closer to matching supply and demand, helped by the increasing dominance of the foundry sector. But the economic crisis undid much of the good work that had been done before. Many of the independent device manufacturers (IDMs) were quick to mothball plant and lay off staff at the first sniff of downturn. This compounded a lack of investment in the run up to the downturn, all of which put the semiconductor manufacturing sector on the back foot.
When demand started to pick up, IDMs struggled to get capacity back online and a number of technologies are now on allocation.
The historical response to a boom in demand has been to jump on the bandwagon by building capacity and Gartner's prediction suggests we might be seeing a rerun of this.
Bearing in mind the state of the industry over the last year or so, such a jump in demand won't be hard to achieve. But it does point to potential over capacity in the next couple of years. And when there's over capacity, revenues will fall and the effects will ripple outwards.
And round the circle we go again …
