State of the Market: Electronics & Semiconductors

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The many supply chain disruptions and shortages that plagued the electronics industry for much of 2021 and 2022 continue to wane, but the current business environment presents a host of new challenges for manufacturers, distributors and buyers alike. High inflation, a rising interest rate environment, geopolitical turmoil and escalating business costs are impacting most business sectors right now, and electronics and semiconductors are no exception to the rule.

After posting 0.2% growth in 2022, the global semiconductor market is expected to decline by about 11% this year, according to a new Gartner forecast. The market totaled nearly $600 billion in 2022 and the research firm’s short-term outlook forecast puts this year’s total revenues at $532 billion for the sector.

“As economic headwinds persist, weak end-market electronics demand is spreading from consumers to businesses, creating an uncertain investment environment,” said Gartner Practice VP Richard Gordon in a press release. “In addition, an oversupply of chips which is elevating inventories and reducing chip prices, is accelerating the decline of the semiconductor market this year.”

Gartner also says that the memory industry is dealing with overcapacity and excess inventory, and that these realities will put “significant pressure” on average selling prices (ASPs) this year.  The memory market is projected to total $92.3 billion, a decline of 35.5% in 2023. However, it is on pace to rebound in 2024 with a 70% increase, the firm reports.

“The semiconductor industry is facing a number of long-term challenges in the decade to come,” said Gordon. “The past decades of high volume, high-dollar content market drivers are coming to an end, notably in the PC, tablet and smartphone markets where technology innovation is lacking.”

Key Trends Shaping the Industry

In “5 trends shaping the electronics industry in 2023,” Siemens discusses the reshoring of electronics production and how manufacturers are thinking harder about their production locations these days. Reshoring helps to establish a more resilient supply chain, which has recently proven to be a critical element of successful manufacturing.

“It also offers additional benefits, no less significant, such as increased quality control, shorter delivery times and reduced shipping costs, and smoother communication between manufacturers and suppliers,” Siemens points out. The company is also seeing higher demand for sustainable electronics, and manufacturers are stepping up to the plate to help meet that demand.

“Global warming is quite literally a burning topic, with consequences felt worldwide. This has created a rising demand for sustainable products, and manufacturers are also increasingly required to use more sustainable and socially-responsible manufacturing methods,” Siemens adds. “The electronics industry, which accounts for 4% of global greenhouse gas emissions, will be forced to make changes to meet the new requirements and demand.”

Managing Port Disruptions

One current issue that manufacturers and distributors are keeping a close eye on right now is the West Coast port labor negotiations. In June, several “unofficial” events took place at multiple ports, where cargo operations were disrupted for a period of time. For example, at least one terminal at the Port of Long Beach was shut down when Total Terminals International canceled operations there, reports Bloomberg.

The PMA said that a West Coast dockworkers guild “effectively shut down some terminals across every major container gateway on the US West Coast,” the publication adds. One ILWU chapter said members in Southern California had taken it upon themselves to voice their displeasure with the ocean carriers’ and terminal operators’ position.

Because contract negotiations have been underway for more than a year, some companies have already taken steps to mitigate any impacts of a potential strike. “Many shippers took steps before the contract expiration to ensure there would be no significant impact arising from labor disruptions by shifting cargo to the East Coast and Gulf Coast ports,” Walter Loeb writes in Forbes.

“Such routing changes obviously add expense since distance and going through the Panama Canal adds costs and time,” Loeb continues. “For merchandise from Taiwan, China or Korea, it is almost imperative that the West Coast ports be open to receive the merchandise. There would be major delays if merchandise has to be rerouted.”