Asian Semiconductor preview into the upcoming cyclical correction
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Asian Semiconductor preview into the upcoming cyclical correction

We expect companies should experience more pressure from the macro slowdown. After two years of chip companies trying to catch up to demand and meet customers' desire to secure more inventory, macro pressures and demand shifts are changing the outlook. These pressures include rising supply chain inventories to 20-year highs, regional pressures from the Russia-Ukraine conflict and China's zero Covid policy, and a shift from discretionary consumer tech goods consumption toward services and essentials due to inflationary pressure.

We do expect better resilience for advanced capacity over mature capacity. The advanced fabs' utilization could keep better loading to support new applications (high-end phone migration, AI accelerators, hyperscale computing, ADAS/Infotainment) and is more consolidated than the mature capacity. Following underinvestment the past few years, mature 12" capacity could grow faster balanced by a slower 8" expansion. Pricing at least could see some buffer, as long-term agreements are in place with deposits, which allows for negotiating room on shipments over pricing.

We also view some divergence in the cyclical areas of the semiconductor group. Memory and driver ICs are under correction while back-end capacity is still near full at the tier-one suppliers. For the back-end companies, capacity expansion has already been decelerating and allowing for a moderate year of growth, margins, and free cash flows. On the flip side, memory is now in a price correction across DRAM and NAND owing to elevated customer inventory and a slow consumer demand. Additionally, PC and mainstream smartphones demand has pushed lower while data centre appears over-allocated. Favourable signs of CAPEX restraint may help the sector keep correction manageable. For the bare wafer sector, new greenfield fabs are only being announced now and will turn onstream 2-3 years later, so supply growth stays measured. The risk from memory wafer deliveries would only come off if memory pricing dropped more severely to require utilization cuts

@Randy Abrams