The Six Five team gives their take on what lies ahead for semis.
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Transcript:
Patrick Moorhead: Let’s move to the next topic and it really comes from an article, a research note that you’re working on Daniel, and that’s what’s next for the semiconductor supply chain? I am looking forward with bated breath to you publishing this out there on MarketWatch, but you’ve had a lot of really intelligent things to talk about with respect semiconductors. And I’m super impressed to see how in the last four years you’ve really stepped up your game and your research and your insights into semiconductors.
Daniel Newman: Well, first of all, thanks Pat. This is a really interesting set of forces that are sort of colliding. You’ve got economics, you’ve got markets, you’ve got technology and innovation and of course you have what I would call the impacts to the every person right now that we’re looking at at scale. And so the pandemic was fascinating and you and I have had some great conversations, we’ve done a ton of press, television, both of us talking about the supply chain thing. And so an interesting note came out this past week. I think it was about the past week from IDC and you and I love to quote other analysts and firms, but this, when I think they’re wrong, I do like to quote them. And in this case, I think it might be wrong.
But IDC came out basically saying that with all of this focus on demand and the requirements for semiconductors, that there’s a fairly high probability due to the macroeconomics, geopolitics and various circumstances that we’re going to end up going and ending up with a chip glut and then we’re going to end up with too many chips. And so I kind of sat down and I said, “I got to think about this a little bit, but what’s the next couple of years look like? What’s the highest probability?” We’ve had the pandemic largely subside as the war in Ukraine has escalated. There’s some new variant that might pop up. We’ve still seen, there’s been some factory closures in China that’s affected Apple. We know there’s palladium and neon gas in Ukraine and Russia that could impact the supply chain down the way. We know some of the harnesses for cars, BMW in fact are built I believe in Ukraine, shutting down supply chain there. And of course we know that the supply chain wasn’t just limited to chips. We had everything from our food supply has been impacted, finished goods, paint, material, chemicals, materials.
And so chips got into focus because we have a strong relationship with our devices. We love being on social media. We want to be connected. We want to work. We want to be more productive. We had to get our kids back into school even if they couldn’t go to class, we’ve got to be able to travel. We want smart vehicles. We want smart grids, all these things, the cloud, all these things that are happening. Long and short Pat, is I’m going to have to point everyone to the OpEd because this is going to be a 25 minute diatribe. But what I kind of want to come down to is what are the two most likely scenarios? I’m going to just kind of in short, say one, IDC could be right, but I think they’re wrong.
And the reason I think they’re wrong is basically despite the pullback in markets around growth and around innovation, the actual earnings have been really good and those companies are continuing to perform very strongly. The secular trends, 5G, autonomous vehicles, metaverse, blockchain and crypto, you go down the line, gaming, mobility, social media, all super dependent on chips. And then you look at the deflationary value of technology. If companies did get into a strong recessionary environment, what are they going to do? They’re going to buy more. They’re going invest further in tech. They’re going to go to the cloud. They’re going to look for automation. They’re going to look for lower cost of wages and employment, which means you need more remote workers, working in areas that have lower costs, which mean more chips, more chips, more chips. And so, as I see it, there’s not really a circumstance in which we don’t continue to see this strong demand.
The weakness or, Pat, the one risk I do see is this. If the market goes into a deep enough recession and the war lasts for a long enough period of time, and we do see a big enough pullout back, the discretionary spending that jettison PCs, Pat, over the last couple of years, PCs, gaming, somewhat devices, people being able to upgrade on the cycles with stimulus checks and free money, in the market that only went up, could get pulled back a little bit for a period of time. But as I see it is if the market pulls back too much, we end up in a stagflation state, which ends up pushing our government and our policymakers, which love to give stimulus, to put out more stimulus, to invest more in technology, more in semiconductor, Pat. And so I basically can’t really come to a scenario that will last for a long time where the utilization of chips.
And by the way, I barely even mentioned AI, accelerator. There’s so many other things that are going on. What I’ve essentially come to Pat, is the Russia conflict could be a problem. The Russia Ukraine conflict for a while. Of course, if China and Taiwan have any major issues, but in all cases, if you actually look at chips and chip makers and demand for chips, I actually don’t see it being pulled back much. The biggest risk is that we don’t get the resiliency right? Intel’s fabs take a long time. We don’t get enough other manufacturing done here in the US. We continue to depend on the East to provide us with all of our chips. And if that actually does come into play, we’re going to end up not with a glut of chips, we’re going to end up with not enough chips. The prices are going to soar and we’re going to be in a recessionary state that’s only going to be a bigger harm to the economy. Like I said, I can go for 20 more minutes. Going to stop there because I’m sure you’ve got a lot of reaction.
Patrick Moorhead: Yeah. I could probably talk about this for 15 minutes, but we won’t.
Daniel Newman: I only did four or four and a half.
Patrick Moorhead: Daniel, I don’t know. I’ve been in and around semiconductors for over 30 years. I’ve had relationships with IDC. I used to buy their research. I think they’re really good at their numbers looking in the rear view mirror. If you want to know how many rack mount servers were sold in Malaysia in the third quarter, I think they’re pretty good but looking forward is tough. And the farther you go out, you and I do longterm forecasts and the longer you go out, the higher the chance is of being wrong. The other thing I want to point out about semiconductor forecasts is depending on whether they’re done by the units or they’re done by the revenue. If you’re do them by the revenue, there’s so much money in memory, you can just look at memory and storage and that can throw off. It could be hot in memory and storage and horrible in CPUs, it could be vice versa. That’s what I always recommend people to do the double click on. I think you said 2023 we were going to be in an over supply situation?
Daniel Newman: Well, I didn’t say that. They said it.
Patrick Moorhead: Okay. Yeah. No, I find that highly unlikely for a couple reasons but I do understand where they’re coming from, in that a lot of the memory and storage folks are putting a lot of capacity online. Intel’s big time capacity won’t be online for a while. You’ve got TSMC adding capacity but here’s what people are missing. The right kind of capacity is not going online. Lagging edge, PMICs, audio, the things that never get covered out there.
And I always like to remind people, you only need one chip, one 50 cent PMIC to keep an entire car from being shipped and guess what? The rest of those chips inside that car don’t get shipped and they don’t get ordered because they know they can’t ship the car. I’m skeptical on it. I can see that if we went into a deep recessionary period, they could absolutely be right. I do think there are double ordering, potentially triple ordering going in by end users to be able to get what they consider their fair share. But Daniel, I’m going to go with you and let’s put on our calendar on January 1st, 2024 and we’ll get back on.
Daniel Newman: Yeah. And just a quick boomerang, look, this is all speculative at this point. This is the funnest part of our job is having the opportunity to look. I give credit to the firms that try to make these predictions. I know how hard it is, especially predictions within windows that we could be able to hold you accountable for rather than by 2050, this is going to happen. I’m going to be retired by 2050. I’m just telling you. But this is really tricky. It really is tricky. And you made some great points about the lagging edge, which I didn’t really dig into very much Pat, but we saw that was one of the biggest problems that still remains.
These parking lots full of F150s that can’t get the right radio part in on them because they’re missing, like you said, one 50 cent chip. That’s the whole thing is there’s a gambit from the 30, 20, 30 plus nanometer process all the way to the three, five leading edge that’s got to be developed and this surging demand that we have. I just can’t wrap my head around it. It’s always possible. Sometimes that’s when you’re most at risk is when you can’t wrap your head around it. I’ve seen it. But I don’t know, Pat, I think we followed this pretty close. We probably got this right.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
