Semiconductors have a scale effect. When market demand increases but cannot be met by increasing production, large-scale production must be carried out with a large amount of inventory. Inventory, like semiconductors, also has certain cyclical changes. The typical inventory cycle is divided into four stages: active destocking, passive destocking, active inventory replenishment, and passive inventory replenishment.

Affected by the epidemic in 2021, automobile manufacturers predicted that the market would decline, thereby reducing the number of chip orders. However, after the epidemic eased, new energy vehicles began to exert their strength, and automobile sales showed an upward trend again. At this time, chip foundries have allocated their production capacity plans to consumer electronics, so it is difficult to temporarily increase the supply of automotive chips. At the same time, the United States has intensified sanctions on China's semiconductor industry, and the uncertainty of semiconductor trade has increased. The terminal manufacturers' concerns about the security of the supply chain have triggered panic stockpiling throughout the industry, and the current situation of chip supply and demand has intensified, pushing the entire industry into the stage of active inventory replenishment.

In 2022, the semiconductor industry was affected by the global economic downturn, and the consumer electronics market was significantly impacted. Therefore, terminal manufacturers still have a large backlog of inventory, and the chip shortage situation has reversed. Starting from the third quarter of 2022, chip design manufacturers have cut orders. According to procurement data, in 2022, the chip spending of the world's top 10 original equipment manufacturers (OEMs) decreased by 7.6%. This shows that the terminal market has cooled, inventory pressure has gradually shifted to upstream chip manufacturers, and semiconductor industry inventory has also hit a record high.

The downturn in consumer electronics will first affect the storage market. Currently, the number of days of inventory of memory semiconductors in South Korea has set a new record of 20 weeks. In addition, in the PC market, Intel and AMD also admitted in a phone call that the backlog of product inventory has also led to insufficient CPU shipments. Domestic semiconductor manufacturers involved in the mobile phone market have also been affected to varying degrees. Some manufacturers even said that they have made preparations in advance for inventory price drops.

The pressure of chip inventory has gradually shifted to chip manufacturers. Generally speaking, the capacity utilization rate of chip manufacturers is around 92%. Taking SMIC and UMC as examples, since 2019, the capacity utilization rate of chip manufacturers has remained above the average. Until the third and fourth quarters of last year, the capacity utilization rate of chip manufacturers began to fall below the average, entering a stage of reducing capacity and destocking.

While consumer electronics chip manufacturers are constantly looking for more channels to reduce inventory, automotive chips are still in short supply. In the third quarter of last year, the inventory of manufacturers such as Infineon, NXP Semiconductors, STMicroelectronics, and Renesas Electronics had returned to pre-epidemic levels.

Currently, inventory is mainly concentrated in the consumer electronics market, represented by mobile phones and PCs. As the economic environment improves, the consumer electronics market will also pick up, and chip manufacturers' inventory will gradually decrease. The shipment volume of consumer electronics will affect the speed of chip industry inventory reduction.

Based on its judgment of the economic environment and market trends, Strategy Analytics predicts that the inventory turning point will occur in the middle of this year, the inventory level will gradually decline in the second half of the year, and the semiconductor industry's prosperity will bottom out and rebound.

From the chip shortage to the emergence of order cuts, the industry needs to learn from this wave of inventory cycles. Since the chip shortage, some small and medium-sized chip design companies have faced a survival crisis due to their inability to grab production capacity. When it comes to the order cut period, it is even more difficult for small and medium-sized chips to win opportunities in the sluggish market. Therefore, in the process of inventory adjustment, small and medium-sized enterprises are not competitive enough, which makes leading enterprises have a greater advantage and may even gain a larger market share.

Xie Ruifeng, deputy director of Strategy Analytics, said: "For downstream companies, the supply chain system has become more important. They must not affect their performance due to shortages, but also maintain a moderate inventory. From the perspective of chip companies, companies cannot bet on a single application field. Previously, consumer electronics was the driving force for the growth of the semiconductor industry, but now, the automotive category has become the new main force supporting the growth of semiconductors. Chip companies must make plans as soon as possible and expand more businesses to adapt to market development."