Chip stocks worldwide have slumped due to fears surrounding the global computer chip industry.
The sell-off followed reports that the Biden administration may further tighten restrictions on exports of semiconductor equipment to China. Comments by former US President Donald Trump, suggesting that Taiwan should fund its own defence, added to these concerns.
In the US, the tech-heavy Nasdaq index closed 2.7% lower on Wednesday. Chip stocks also fell in Europe and Asia, with Nvidia closing 6.6% lower and AMD losing more than 10% in New York. In Asia, chipmaking giant TSMC lost 2.4% on Thursday, while Tokyo Electron dropped around 8.8%. In Europe, shares in ASML, which makes chip-making machines, tumbled by almost 11%.
It appears that the US government is preparing to impose its strictest curbs yet on semiconductor-making equipment to China if firms like ASML and Tokyo Electron continue to provide advanced chip technology to the country. This potential tightening follows previous steps by the Biden administration, which in October restricted exports to China of advanced semiconductors used in artificial intelligence technology.
The global chip industry, which had experienced a severe shortage, has now shifted to a slump. Companies like Samsung and SK Hynix have cut production to manage excess inventory and declining consumer demand. The prolonged decline in memory chip prices has significantly impacted companies, even though other divisions have offset some losses. For instance, Samsung’s mobile and display divisions benefited from the launch of new flagship smartphones and partnerships with clients like Apple.
Despite these challenges, there are signs of recovery. Increased demand for certain components, particularly for AI applications, is helping the industry slowly regain traction. The Semiconductor Industry Association reported a 15.2% year-on-year increase in global semiconductor sales in January 2024, indicating a positive trend following an 8.2% decline in sales revenue in 2023.
Geopolitical tensions between the US and China have added to the industry’s woes. The US and its allies have been curbing China’s access to major markets and advanced technologies over fears of espionage. This has led to potential global supply chain disruptions, especially given Taiwan’s critical role in the semiconductor industry. Former President Trump’s comments about Taiwan hinted at further possible disruptions to global chip supplies.
Industry experts predict a gradual recovery in 2024, driven by replacement cycles for PCs and mobile devices purchased during the pandemic. Strategic moves, such as production adjustments and new facility investments, aim to balance supply and demand in the industry.
Additionally, TSMC’s ongoing and planned investments in Japan, including partnerships with Sony and Toyota, indicate a strategic move to diversify production bases. Intel and Samsung are also planning to establish advanced packaging facilities in Japan, which is part of the country’s efforts to revitalise its semiconductor production capacity.
Overall, the semiconductor industry is facing a complex mix of challenges and opportunities, with geopolitical tensions, fluctuating demand, and strategic investments shaping its future.
