10 events that defined the industry in 2022
2022 has been, just like the years before it, a special year. Supply chain issues, geopolitical tension and the resurgence of the pandemic has kept the industry on its toes.
However, it has not all been negative, major investments within the industry have taken place and governments worldwide have realised the importance of the electronics industry.
In this article, Evertiq is looking back at some of the major events from 2022 – all that had an effect on the landscape in which we operate.
Earthquakes and semiconductors
January started with several earthquakes in Asia; amidst a global semiconductor shortage. On January 22, a series of major earthquakes that occurred off the coast of Kyushu, Japan forced Toshiba Electronic Devices & Storage Corporation to suspend operations at its semiconductor plant in Oita, southern Japan.
However, Toshiba wasn't the only electronics company affected by the earthquakes. Renesas soon confirmed that some equipment had halted operations. While Toshiba confirmed damage to some production lines at its Oita operations – which focuses on semiconductor production – Renesas, and its operations in the area, managed without any damage.
It took several weeks before Toshiba could return to full pre-earthquake production levels following the quake.
Russia’s invasion of Ukraine
Russia’s invasion of Ukraine led to a surge in natural gas and crude oil prices. It also came to affect energy prices across Europe. Ukraine supplies nearly 70% of the world's neon gas capacity. Although the proportion of neon gas used in semiconductor processes is not as high as in other industries, it is still a necessary resource. Following reports of a potential disruption of supply of noble gases, several manufacturer’s started to diversify its sourcing for neon gas – among them ASML and Micron. With the invasion, international economic sanctions were put in place against Russia and companies started to exit the country, one after another.
Lockdowns and China’s “zero-COVID” strategy
As we entered March a new – or old – issue arose. In a response to an increase of Covid-19 cases in the Chinese city of Shenzhen, the government – maintaining its strict zero-Covid policy – decided to shut down the southern business centre of the city. At the same time, access to Shanghai was restricted by suspending bus services. These restrictions were scheduled to last until March 20.
However, it didn’t take long until the next major lockdown would occur in China. On March 28, Shanghai entered into a lockdown – this time, local authorities wanted to preserve international transport, but the city would be closed for at least ten days.
As Shenzhen reopened, warnings went out that the city’s three main container ports and air freight routes from Shenzhen – and Hong Kong – would be heavily congested. Data from VesselsValue in late March showed an almost five fold increase in the number of ships waiting to load or discharge at Shanghai when compared back two and half weeks. S&P Global (IHS Markit) painted a similar picture in late April, stating that total congestion levels at Shanghai’s port have increased by about 30-40% since the start of March 2022.
Major mergers and acquisitions
On February 15, Intel officially confirmed that it will acquire Tower Semiconductor, the industry’s ninth-largest foundry, for USD 5.4 billion. Tower operates a total of seven production sites across Israel, the US, and Japan. The company’s foundry capacity in 12-inch wafer equivalents accounts for about 3% of the global total. The majority share of Tower’s foundry capacity is for 8-inch wafers, and Tower’s share of the global 8-inch wafer foundry capacity is around 6.2% – which will soon be in the hands of Intel.
In late March, German manufacturer of power modules, SEMIKRON, announced that it was teaming up with Danish power module design and manufacturing company, Danfoss Silicon Power, to create a joint business – specialised in power electronics and focusing on power semiconductor modules.
The new business – SEMIKRON-Danfoss – boasts a workforce of more than 3,500 dedicated power electronic specialists and also a firm commitment to future investments.
In May, German EMS provider KATEK entered into a deal to acquire Canadian EMS provider SigmaPoint Technologies – a deal that opened the door to the homeland security and defense sectors for the German company. The acqusition was completed in August and with that KATEK boasts 20 subsidiaries and maintains a presence on the North American continent in addition to Europe and Asia.
In June it became official that Applied Materials had acquired Finnish atomic layer deposition (ALD) technology specialist Picosun Oy. The addition of Picosun is expected to expand the capabilities of Applied Materials ICAPS (IoT, Communications, Automotive, Power and Sensors) group, addressing the growing need for innovation in semiconductors that serve the IoT, Communications, Automotive, Power and Sensor markets.
Also in June Danish EMS provider, GPV announced that it would be merging with Swiss-headquartered EMS provider Enics. The combination of the two companies has created one of Europe's largest EMS companies – GPV Group – with more than 7,500 employees, 19 factories worldwide and revenues of more than DKK 7 billion (EUR 941 million).
The US Chips act is a fact
In early August, U.S. President Biden signed into law the bipartisan CHIPS and Science Act of 2022 – which aims to stimulate investments that will strengthen US manufacturing, supply chains, and national security.
With the CHIPS and Science Act, USD 52.7 billion has been made available to stimulate US semiconductor research, development, manufacturing, and workforce development. The goal of the act is to increase the level of domestic semiconductor manufacturing and ultimately reduce the dependency on Asian production.
China however made claims that the Act was a threat to trade and also an attack on Chinese business. During a press Conference on August 10, 2022, Wang Wenbin, the spokesperson of China's Ministry of Foreign Affairs, was asked about the ministry's views on the new bill.
“It would distort the global semiconductor supply chains and disrupt international trade.” Wang Wenbin said. “China is firmly against that.
In late August, U.S. president Joe Biden officially signed an executive order on the implementation of the CHIPS Act. As the order was signed, the president stated that the Act would create "transformative investments to restore and advance our Nation’s leadership in the research, development, and manufacturing of semiconductors."
Massive investments could change the semiconductor landscape
With the constraints in the supply chain and the past years in fresh memory, several semiconductor companies announced massive investments during the year – and following the passing of the US Chips Act, the scope of the investments increased.
In January, Intel announced that it would invest more than USD 20 billion to build two new factories and to establish a new epicenter for advanced chipmaking in Ohio.
German semiconductor manufacturer Infineon aimed to fortify its position in power semiconductors by adding significant manufacturing capacities in the field of wide bandgap (SiC and GaN) semiconductors. In order to do so the company announced that it would invest more than EUR 2 billion to build a third module at its site in Kulim, Malaysia.
A month later Analog Devices disclosed plans to invest EUR 100 million over the next three years in ADI Catalyst, a 100,000 square feet facility located at the company's campus in the Raheen Business Park in Limerick, Ireland.
Intel later announced that it would make an initial investment of over EUR 33 billion for R&D and manufacturing in the EU – investments that will span France, Germany, Ireland, Italy, Poland and Spain and result in a EUR 17 billion “leading-edge semiconductor fab mega-site” in Germany.
A while later it was Micron’s turn to make some noise. As a direct response to the signing of the CHIPS Act, Micron announced the largest-ever investment in US memory manufacturing – estimated to create 40,000 US jobs. The company said that it plans to invest USD 40 billion through the end of the decade to build leading-edge memory manufacturing in multiple phases in the U.S.
US semiconductor manufacturer Vishay said it’s planning to expand production in the city of Itzehoe northwest of Hamburg, Germany. The company will start building a new 300mm fab on a three-hectare property next year.
Intel continues to announce major expansion plans and in August the company signed an agreement with Canada's Brookfield Asset Management to jointly fund up to USD 30 billion for Intel's chip fabs in Arizona.
Micron opened September by announcing its plans to invest about USD 15 billion through the end of the decade to construct a new fab for memory manufacturing in Boise, Idaho – creating 2,000 direct Micron jobs.
The South Korean semiconductor giant SK hynix announced plans for a new fabrication plant in Cheongju. The current plan is to complete the construction of the KRW 15 trillion (EUR 10.9 billion) plant in early 2025.
In October Micron once again requested the spotlight as the company stated that it would invest up to USD 100 billion over the next 20-plus years to construct a new megafab in Clay, New York, with the first phase investment of USD 20 billion planned by the end of this decade.
Escalation of US / China trade wars
The disruption of the chip supply chain caused by the pandemic in the past two years, as well as geopolitical flashpoints such as Sino-US trade frictions and the Russia-Ukraine war, have led regional economies worldwide to focus more on the autonomy of local production and supply chains.
Back in early October, the US launched a series of updates to its export regulations concerning semiconductors and associated technologies to China. Two of the nine new rules stand out, given the scale of both the short-term and long-term impact that they will cause. Industry experts believe that the ongoing expansion of the US semiconductor trade restrictions against China could eventually spread to the display panel industry.
Faced with these US sanctions, China is reportedly preparing a $143 billion chip support package. The support plan is said to be a direct response to restrictions put in place, which have intensified and deepened sanctions against China's semiconductor industry.
In early February, NVIDIA and SoftBank terminated NVIDIA's USD 40 billion acquisition of Arm. The deal was set to become the largest semiconductor deal in history, had it gone through.
The parties have agreed to terminate the agreement due to what the companies describe as; "significant regulatory challenges preventing the consummation of the transaction, despite good faith efforts by the parties". Arm will now start preparations for a public offering.
The deal between GlobalWafers and Siltroic met the same faith as the deadline for GlobalWafer's all-cash tender offer for Siltronic passed without approval by the German Government.
The sale of Elmos 200mm fab in Dortmund, Germany was blocked. The federal cabinet has officially blocked the sale of Elmos Semiconductor 200mm wafer fabrication activities at the Dortmund location. It was back in December of 2021 that the company signed a sale and purchase agreement with Swedish MEMS foundry Silex Microsystems AB to transfer the fabrication activities. Since 2015, 2015, Silex Microelectronics is owned by Chinese company Nav Technology Co Ltd.
The UK government ordered Nexperia to divest 86% of its semiconductor wafer factory in South Wales, known as Newport Wafer Fab (NWF) – several years after the sale had been completed.
EU proposes Chips Act
For the past several months, the EU has been debating subsidies for the semiconductor industry; with no apparent end in sight if you listen to industry representatives. For them, the catch-up race in the chip industry, announced at the beginning of 2022, has now progressed to "provide the Council presidency with a mandate for negotiations with the European Parliament". Or, as many would say, has not progressed at all.
Andreas Gerstenmayer, head of the Austrian PCB manufacturer AT&S, told the Handelsblatt in late November that "Europe is the world champion in announcements, but a dwarf in implementation". Other nations have already decided on funding programs worth billions. Gerstenmayer continues his criticism by saying that the EU is now being overtaken left and right, even by countries like South Korea or Japan, which are smaller than the EU.
Oversupply on the horizon?
Although there are still sporadic shortages of specific components, the curtain has officially fallen on a two-year wave of shortages in general, and brands have gradually suspended stocking in response to changes in market conditions.
Early in 2022, the near-term prospects for the memory markets, including both DRAM and NAND, were decidedly bright, despite the backdrop of tenuous geopolitical dynamics with the conflict in Ukraine and worsening China/US relations.
In the final weeks of Q2 2022, however, circumstances quickly began to change, and the hopes of banner years for the memory markets were dashed. A perfect storm of demand-side developments crashed into the memory markets, and not even the most rational production plans for 2022 could withstand the onslaught of bad news.
Rising inflation has weakened demand for consumer products, flattening the peak of peak season. In 3Q22, memory bit consumption and shipments continued to exhibit a quarterly decline.
Due to a significant decline in memory demand, terminal buyers also delayed purchases, leading to further escalation of supplier inventory pressure. At the same time, the strategies of various DRAM suppliers to increase their market share remain unchanged. There have been cases of "consolidated Q3/Q4 price negotiations" or "negotiating quantity before pricing" in the market, which are the reasons leading to a ballooning of declining DRAM prices to 13~18% in 4Q22.