TSMC head office in Taiwan. Image: TSMC

Global orders of Semiconductors continue to pour in, but the latest data from the world’s largest chipmaker suggests this high demand is starting to look like industry storage. This could be a huge problem when supply chain bottlenecks ease.

Taiwanese TSMC on Thursday announced record profits thanks to orders from customers like Apple, Nvidia and AMD. This optimism will continue for the foreseeable future, with the company expecting 24% annual growth.

But much of those orders fall short of satisfying the global hunger for gadgets, connected cars and burgeoning server farms. Inventories at the Hsinchu-based company jumped 66% at the end of September from a year earlier, the fourth consecutive quarter in which that figure has climbed more than 65%. Inventory days, another metric used to compare the amount of product on the shelves, remained high at 85 days.

TSMC does not ignore the situation and does not expect it to improve. CEO CC Wei told investors he continues to expect customers and other companies in the supply chain to build up inventory until the end of the year and maintain higher levels for the next year. a longer period. The implication being that TSMC isn’t alone in creating inventory, with the rest of the industry also filling the shelves with chips as quickly as possible.

It is a concern. More than half of the company’s revenue comes from its two most advanced production nodes. And as a general rule, the newer the technology, the shorter the shelf life – customers who need the latest and greatest chips should keep upgrading.

Unpleasant indigestible

But global bottlenecks are forcing customers to place larger-than-normal orders to avoid being caught off guard if logistics issues prevent fresh supplies from reaching their destination. There are many sectors where products can be stored without too much risk, such as coal, grains and even older electronic components. At the forefront of the chip industry, however, products can become redundant within six months and customers know it. If one of them starts to see final demand weakening, it is very likely that they will reduce orders considerably so that they can digest the stocks they have already built up.

Even as the world continues to grapple with shortages of potato chips, now is the time to be on the lookout for clearing that backlog where insatiable hunger could quickly turn into bad indigestion. – (c) 2021 Bloomberg LP

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