The electronic components supply chain experienced a lot of hurdles over 2023. After just starting to recover from the long-lasting global semiconductor shortage, the sudden rise in excess inventory coupled with export restrictions on everything from semiconductor manufacturing equipment to elements critical for chip production has offset supply chain stabilization. Going into the new year, the electronic component supply chain will continue to face more shifts as new technology and domestic resilience shape its future.
At the forefront, according to Tony Huang, a consultant and director at the DIGITIMES Research Center, is the evolving tech landscape and shifting dynamics within Asia’s supply chain. Demand for silicon wafers will vary as global equipment spending changes due to export controls and sanctions from ongoing geopolitical volatility. A driving force forecasted to reawaken concerns of another shortage is the current heavy focus on generative artificial intelligence.
Demand for high-performance computing (HPC) and artificial intelligence (AI) server supplies are rising to meet with growing interest in generative AI applications. As a result, cloud service providers are now customizing their own chips to improve energy consumption and cost optimization. Since rising in popularity over 2023, demand for AI cloud capabilities will remain a leader in 2024. With low consumer demand for personal computers and white goods, generative AI will be the primary driver of capital expenditures in late 2023 and early 2024. However, the AI trend might only benefit some select industries rather than acting as a stabilizing force for the entire semiconductor supply chain.
Many tech giants are partnering with chipmakers to collaborate on their own chips to exploit these new opportunities. A primary example is Broadcom and Google’s partnership to develop specialized TPU chips, while TSMC collaborates with dozens of cloud service companies to manufacture their specific parts. In TSMC’s case, the main driver of revenue growth is expected to be graphic processing units (GPUs) for AI cloud services. This can already be seen with Apple and Nvidia’s domination of TSMC’s upcoming 2nm production capacity.
This growth will likely have a secondary impact on the memory market, in which it will dramatically shift from surplus to shortage.
Over 2023, the memory chip market, within DRAM and NAND flash, experienced the most significant downturns in demand. Over 2023 alone, memory chip sales, which had previously accounted for 30% overall, dropped to 17%; for memory manufacturers Samsung Electronics, SK Hynix, and Micron Technology, strategic cuts to production capacity on specific product lines were imperative to stop excessive hemorrhaging from growing oversupply.
Samsung and SK Hynix forecast a short supply for DRAM and NAND flash in 2024. The leading cause of this sudden shift is the growing demand for server memory in general and AI servers, which require high bandwidth memory (HBM) chips and DDR. Similarly, rising electrification in vehicles alongside electric vehicle (EV) popularity has led to increased implementation of intelligent cockpits and advanced driver assistance systems (ADAS). It has boosted orders for optoelectronic semiconductors for sensing and application processors.
That said, DRAM and NAND flash will still heavily rely on the shipment growth of smartphones and PCs, which comprise most of its sales.
After years of a semiconductor shortage and the challenging past year of growing excess, it's time the global electronic supply chain saw stabilized growth. 2024 will still have challenges, most directly due to the generative AI boom that has invigorated semiconductor sales and innovation in the tech sectors, leading to bottlenecks. According to experts, growth in generative AI and cloud services will primarily shape the industry’s trajectory over the next five years. Memory will make its comeback thanks to these developments.
Conversely, continued export restrictions between the U.S. and China will likely change the global semiconductor supply chain landscape. Further decoupling of the existing semiconductor supply chain could lead to other disruptions, such as raw material shortages or increased lead times for some electronic components. Likewise, the ongoing efforts to improve domestic semiconductor manufacturing will still take some time to help resolve the dependency on one geopolitical area for chip supplies. The need for more skilled labor to operate the facilities as they come online could stretch out the previously estimated production initiation date well into the future.
Efforts on behalf of civic leaders and semiconductor industry executives aim to lessen the impact of a future labor shortage that’s as potent as currently forecasted. Semiconductor industry companies, like leading chip designer Arm, are working alongside education leaders to form the global Semiconductor Education Alliance (SEA) to share resources among companies to prevent future labor shortage disruptions.
These collaboration efforts will and should be utilized to their fullest extent over the next few years to avoid complications from a labor gap.
However, these are likely to remain distant future challenges beyond the immediate problems that could arise over 2024. It will take several years to bring domestic semiconductor manufacturing facilities online and meet the expected production capacity for predetermined product lines. The rising possibility of chip shortages for parts used in AI and cloud servers will only grow as demand increases. Domestic resiliency will not be a solution in 2024 to mitigate these problems.
Going forward into 2024, it will be pertinent for OEMs, CMs, and EMS providers of all sizes to monitor these market trends. A robust market intelligence tool like Datalynq can help users strategically prepare for upcoming shifts with its predictive analytics and design risk scores. When sourcing hard-to-find components in the coming year or quickly parting with excess inventory, leading e-commerce site Sourcengine can help users find what they need from over 3,500 factory direct, authorized, or qualified third-party vendors.
If you want to prepare for 2024’s new supply chain landscape, you can now talk with Sourceability’s team of experts.