One trend this earning season in the semiconductor industry has sparked murmurs of gluts — at least in some parts of the industry.
The results from companies like Micron (MU) to Taiwan Semiconductor (TSM) have led analysts to wonder if chip companies may be facing a so-called toilet paper moment in the coming months. Chip demand has slowed due to global economic downturn after a year when these companies did everything they could to ramp up production.
However, a close observer of the industry in Washington says she isn’t worried. When asked about about the concerns on Friday, Commerce Secretary Gina Raimondo crisply responded, “No, of all the things I worry about, that’s not what I worry about.”
“Demand is just going to continue to rise,” she added about the long-term outlook during the Yahoo Finance Presents conversation this week with Julie Hyman.
Raimondo is currently in the midst of talks with lawmakers to deliver new subsidies to the semiconductor industry that are expressly designed to expand supply further in the years ahead. The bill would encourage companies to build new factories and make semiconductors inside the United States. If passed, around $52 billion would be earmarked for American companies like Intel (INTC), who is looking to build in Ohio, to foreign companies like GlobalWafers, who are eyeing a new facility in Texas.
The Commerce secretary promised during Friday’s conversation that President Biden would be able to sign the long-delayed bill ‘this summer’
‘The new oil’
But even as legislation would goose supply closer to the end of the decade, many observers of the industry are more focused on the coming year.
Taiwan Semiconductor recently came out with earnings that showed resilient chip sales but the company was nevertheless reviewing their capital expansion plans in anticipation of a possible slowdown.
Similarly this week, Goldman Sachs cut its 2023 earnings forecast for chipmakers by an average of 20% because of similar concerns. Additionally, Micron directly told their investors last month they were concerned about a glut of chips and would reduce production.
The divergence in outlooks is largely between short and long term expectations.
Daniel Clifton, head of Washington research at Strategas, appeared on Yahoo Finance this week and reminded of semiconductors that “people call it the new oil” adding that if a nation can “control oil and chips, you start to control the production of just about anything that’s going to happen in the economy and we could see that that’s where the long-term trend is.”
Raimondo predicts a rise of 20 to 25% in overall demand in the next three years.
“There are thousands of kinds of chips and different products and such, so it may be that demand in certain areas goes down and demand in other areas goes up,” she acknowledged but the larger picture is that pretty much every company in the world is now closely linked to the digital economy and “you need semiconductors for every technology and anything that’s digitized.”
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.
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