Chip sales to grow nearly 10% in 2022 as risks rise, Euler Hermes report predicts

• Chip sales to grow 9% and cross $600 billion for the first time in 2022

• Technological “cold war” between China and U.S. is a risk factor for the growth

The global semiconductor industry is expected to report record sales again in 2022, riding the wave of digitization of the economy, despite having a high-risk environment where saturation reached in major client industries like smartphones and computers.

In a report by Euler Hermes released on Monday, the trade credit insurer said, “The current semiconductor cycle has been firing on all cylinders since the industry emerged from its worst recession in 2019.”

ALSO READ: Qualcomm chief open to work with foundry partners in Europe

Semiconductor sales, which grew 26% to $553 billion in 2021, is expected to grow by another 9% and cross $600 billion for the first time in 2022, the report said.

New investments

During the pandemic, a months-long chip shortage impacted a wide range of industries globally — from automobiles to gaming consoles — as chipmakers struggled to keep up with the unprecedented demand following the global economic recovery.

While major chipmakers like Taiwan Semiconductor Manufacturing Co (TSMC), Intel and Samsung have announced plans to invest in new facilities, fab labs and increase capacity, these facilities usually take years to come online.

Intel announced to invest up to $95 billion in new chip-making facilities in Europe in September last year to increase production capacity during a worldwide chip supply bottleneck.

Earlier in November, TSMC and Sony said the two companies would build a $7 billion chip plant in Japan, and Samsung plans to construct a $17 billion semiconductor facility near Taylor, Texas.

Possible gains and risk factors

Aurélien Duthoit, the sector advisor for Euler Hermes, expects the extraordinarily high demand and price to drive up semiconductor sales this year.

The report said “unusually strong demand” for consumer electronics such as personal computers and smartphones, which accounts for 80% of semiconductor sales, paired with an increase in prices due to tight supply and demand dynamics, will help the industry.

Furthermore, the introduction of higher-priced, new generation chips using the 5nm manufacturing node will help improve the product mix.

However, Duthoit expects the same three market drivers to ease as demand growth normalizes and new production capacities come online earlier than expected.

ALSO READ: Intel’s China apology over Xinjiang remarks shows good business trumps good politics always

After solid growth in 2020 and 2021, consumer hardware sales could take a longer-than-expected hit from demand normalization, and any period of prolonged freeze in manufacturing activity due to supply chain disruptions will hurt the sector.

The analyst also said an “increasing frequency of unusually adverse climatic events” could pose a significant challenge for the industry, which relies on optimal capacity utilization for its profitability.

US-China trade dispute

The report also said the “standstill” between China and the United States in a battle for tech supremacy, with restrictions for Chinese companies acquiring crucial U.S. chip manufacturing tech and equipment is also posing a risk on the overall global semiconductor industry.

He added that new developments in the technological “Cold War” between the two nations are a risk factor for the growth as the restrictions enforced by the former U.S. President Donald Trump have not been lifted since Biden took office in 2021.

Picture credit: Raconteur