集微网消息，在往期的集微访谈栏目中，爱集微有幸采访了Future Horizon创始人兼首席执行官Malcolm Penn。集微访谈就关于半导体市场周期、市场变化逻辑、对2023、2024年市场行情预测等一系列问题，收到了十分有启发的答复。
问：您已经经历过 15、16 或 17 次行业严重衰退。那么您如何看待这一次的低迷呢？就像一个问题，你知道，这对未来市场有何影响？
问：您已经预测 1 月和 3 月市场收入将下降 22%。然而，我们也注意到您在 5 月份小幅回撤了 2%。第一季度的哪些因素促使您做出这一决定？
问：所以你已经表示今年第一季度更接近你之前预测的牛市。最糟糕的 -26% 不太可能，现在不太可能，所以你过去，你仍然强调实质上没有任何真正改变，这部分是什么意思呢？为什么你认为它没有真正改变？
问：关于英国芯片法案。英国政府投资 10 亿英镑的半导体行业支持计划,那么您的理解？
Q:So compared with other consulting agencies, your forecast for semiconductor market revenue in 2023 was, let's say, the most pessimistic, so what factors in the market make y ou make such a prediction? And also, why is there such a huge difference between agencies when it comes to the forecast?
A:Yes, I think the difference really comes from the fact that we believe that the shortage that we experienced in 2021 and 2022 was fundamentally driven by the fact that there was a mismatch between demand and capacity. And in fact, that's always what triggers the shortages or the excesses. It is that inability to balance supply and demand, because supply is on a very, very long lead time, whether you take the amount of time, it takes to actually make the wafer in the factory, which is typically anywhere from 4 months to even 6 months, and depending on how complex the parties, and even the very simple ones take 3 months.
So you got that long queuing time of actually being able to, if someone orders something which they hadn't previously warned you about, they can't get delivery for at least 3 months, maybe 4, 5 or 6 months, and that's if you have capacity. If you haven't got capacity, then it takes at least 1 year to build a new facility. If you haven't got a building, it takes 2 years. So you know, if you haven't ordered it, you could wait 2 or 3 years before you actually get the parts.
In the meanwhile, the demand doesn't go away. In fact, he gets worse because then people start to over order. They order more than they want. They double order simply because the lead time is too long. And they have to keep their production lines going, so you can't balance supply and demand very easily.
We failed to do that completely over the history of the industry, so you're gonna get these periods whereby suddenly demand runs away with you in the case of 2021, it was because the shutdowns we all had to work from home, we couldn't go out. We all had to buy computers, we bought new televisions, new entertainment systems simply to be enable us to now work from home. And that caused spurs in demand which the industry couldn't deal with, so it immediately tipped into an undersupply situation.
Now the opposite happens like now when suddenly you build more capacity, and it all starts to come online, and then suddenly the customers think, hang on, I'm getting all the parts I needed, but I over ordered, so they cut back and they eat their inventory. And so then you don't need to buy anything because you've already bought it the year before effectively. So that means demand suddenly goes away, which automatically causes over capacity, because now you've got the capacity, and now you haven't got the demand.
Suddenly you got an empty factory or a near empty factory. And then people want to fill the factory, so the first thing they do is to actually reduce the price. So then you have a situation of falling demand, falling average price, and that doubles up together to give you a steep decline in revenue. That's why you always get these steep increases, and these very steep decreases. Simply the correction to where you are in that cycle, so I think that's... and we believe that those corrections are quite steep. And then that's why we felt that you were always gonna get a high double-digit upturn and a high double-digit downturn.
I guess it's that belief and that confidence in that belief which makes us different from other people, other people aren’t may be quite so brave as we are. And they kind of try to temper the bad news by saying it's only gonna be slight or moderate, won't last very long. But in fact, it never does because these are long lead times, and you can't shorten that lead time.
The fact remains is it's just fundamentally part of the DNA, it's part of the way the industry works. We're brave enough to say it, I guess, so maybe some of the others aren't that brave. We're lucky that we're independent, so we don't have a boss to deal with, our boss is our customers. And we can explain to them why we think this, and they can either choose to say whether it doesn't affect me or they can choose to listen.
But at least we are able to stand up. We don't have to answer to a board. We don't have to answer to investors, to shareholders. We don't have to consider those things. We can just say here is how we view the industry, here's what we see, and here's why we come to our conclusions.
Now you can be the judge whether you think we're right or pessimistic or optimistic. And we'll tell you why, and we'll tell you the facts, and we'll tell you what led us to that conclusion. Then we are rich cheeky, because we didn’t show you 17 years or 50 years of history, and show you the previous downturns and the previous upturns, to say, why is it gonna be different this time? What's different, really different this time to make it different this time around.
Q:Last but not least although you have stated that it is still very early to draw the growth figures for 2024, so could you possibly give a rough estimate based on the current market situation?
A:Yes, I mean I think the way if it rolls out, as you would expect it to, you should be looking at a low single digit growth rate number for next year. So if I had to hazard, I guess I'd say somewhere between 4 and 6 % would be a typical type of number for that first year of recovery, increasing quite strongly in the second year into low double digits type of area there.
That would be the normal shape of the recovery curve that you would expect to see and we will know better what exact shape that's going to be when we come to our forecast in September of this year, that's when we will make a firm commitment, but we see that number to be... But I would expect at this point in time here to be in that low single digit range.
Now, if the economy does collapse in the second half of the year, that will push it out slightly, it still has that caveat of we really don't know how this year will roll out, but how the year does roll out will affect the way that the mathematics projects itself forward over that period there.
The actual dynamics behind that won't change. It still will be this gradual rebuilding of inventory, the gradual rethinking of the supply chain, the gradual decrease in excess capacity, the slow increase in average selling prices, all of those things, step by step, slowly accumulate together to give you this increase in value shipment, so it's just a question of whether that happens quickly or slowly.
We believe it will happen kind of in a moderately normal way that will give you this kind of 4 to 6%, maybe 8%, but I doubt it, but certainly a range in the 4 to 6%. So I would expect to see our three scenarios being somewhere between 6%. The forecast, probably in my 4% of the worst case and maybe 10% the really bullish, optimistic case.
Q:That was really helpful, and my third question would be, you have already been through like 15, 16 or 17 critical downturns of the industry. So how would you view the downturn this time? Like a question that was, you know, and what are the implications for the future market?
A:Yeah, I think, as I mentioned earlier, the downturns are always triggered by the same thing, and that is this mismatch between supply and demand. Once you get into an overcapacity situation, then when you're transitioning from an overcapacity to an under capacity or an under capacity to an over capacity, you always get these abrupt changes in the units that we ship to the customer. Not in the demand, because what we ship and what you need is two different things.
It's plus or minus any inventory adjustment as it's happening in between there. The demand they stay the same, but what you're buying, what you're ordering is gonna be very different. It's gonna be what you need plus what extra you want to have for your inventory to keep your supply chain either safe or to cut back on your inventory, because you've got too much stock.
I think you always do get this, and that's typical of every cycle. And this cycle is no different than the 18th will be exactly the same. Until industry manages to balance supply and demand much better. That's quite a complicated issue. I don't know when or how that could actually happen, because it's contrary to the way the industry works.
So I think it is the same, and it is always driven by liquidation of inventory, falling prices. Eventually you liquidate the inventory, so you got to buy more, rebuild the demand that factories start to get full again.
In the meanwhile, you stopped investing because you got too much capacity, so you stop investing. And that starts the very next cycle to go. So I think it's always subtly different, not all products react at the same time. A memory always reacts quickly, then micro, and then logic, and then analog is always the last one to react in the cycle.
Likewise, memory is always first to recover, then micro, then logic, and then analog, and not every sector is different as well. I mean because you find that some sectors that can... the pc, the consumer sectors react much faster. Then, for example, the automotive sector, which is on a much longer, a much more slower, kind of lead time to supply.
I think every sector is different, every product is different, but they all work to the same tune, they're all marching to the same drum. It's just small timing differences that really make the overall.
Q:So also in this recession, so what do you want to say to the investors and also companies from both upstream and downstream in the industry?
A:Yeah, I mean I think the real message is learn the lessons of history. I mean history is a reliable indicator of how behavior will happen in the future. And in general, the world is bad learning the lessons from history. We always want to believe it's going to be different this time. We always believe that there's real reasons why that's going to be the case. But in reality,
it really is different this time, because it is following natural sort of thought processes and natural dynamics. Unless you're changing those dynamics, then the result will not be different. If you want a different result, you have to do something different.
We're behaving in exactly the same way as we have done in the past, so I think the main thing I would say to clients, to investors, to all of the people in the full chain is look at the natural things, don't be over complicated, don't over think it, look to see what is actually happening, where are we in the cycle? What has happened before? How is that likely to affect what's likely to happen in the future?
And I think when you do look at those things there, and you keep those in the back of your mind, all you're looking now for is differences, variances, how does it subtly different? But you got the underlying theme in your mind there, so you're really looking to see how will it subtly and resolve itself in a slightly different fashion this time now. But it's very unlikely as this downturn is showing, I mean, it is rolling out exactly as the previous ones have.
We've had three consecutive quarters now in this is adjustment and their behaving in exactly the same way as every other one of those past 17 downturns has behaved. And so, and the upturn is likely to behave in exactly the same way because eventually we will liquidate the inventory.
We will have to therefore buy more parts, because now we are not living off stock, we're living off what we're ordering, so your orders will automatically increase. That will stop the prices falling, because suddenly demand is going up. So suddenly prices will stop falling, or they may even start to increase.
And if that happens, you get into a positive spiral. And then eventually you will absorb all their excess capacity. And you will suddenly find yourselves “I haven't got enough capacity. That's a 2-year lead time”. So suddenly, you know the whole thing, until we learn to build capacity in anticipation of what we're needing, and you're never gonna be able to try to soften that forward looking of dislocation between supply and demand.
We used to do that, but now we don't, because people can't afford to build an expensive factory and not knowing who they're gonna sell the output to. But customers were reluctant to commit to that output, say, I guarantee to take that in 2 years’ time, because they don't know, so I mean you have an impossible equation to balance.
Q:Okay, great. It's always great, too. To be free to say something without the authorities out there. Also, so my next question would be, you have already made a forecast of a 22% decline in the market revenue in January and March. However, we've also noticed that you slightly put back 2% in May. What factors in the first quarter made you make this call back?
Q:Right, to be truthful, we didn't actually change our forecast. We did counsel that we thought that the original number was actually well within the framework of the accuracy that you can get in any forecast. What we do always is we make a projection what we think is going to be and why then we'll measure what we said against how that year rolls out, and only if something really dramatic happens, will we change our forecast?
Because we believe you should be measured by what you said in the beginning and not by what you keep constantly re-forecasting, because anybody can get the number right if you keep changing it every month. And that's not doing, we believe our clients are justice.
So when we made that 22% forecast, which we asked he made over 18 months ago, interestingly, we were predicting and looking at how that downturn would affect when we get to this situation of supply and demand coming into balance and what would you typically expect the industry to do? And then we reaffirmed it, as you said, in January and March, and we kind of said, yes, we believe that numbers as good as anything.
The real difference at that time was, was it even gonna be negative? I mean a lot of people were saying it wasn't even gonna be negative. Now, the general feeling is it will be negative, but only very slightly, maybe 5 or 6%, something like that. And we still believe it will be a strong double- digit negative growth. Now, it all depends on the math at the end of the day. I mean it is a mathematical situation. We forecast originally that we thought the first quarter would actually shrink by 10%. We had a range there of -8% to -12.5% in terms of what that range was likely to be.
Now, as it happened, the first quarter was slightly stronger. Then our forecast in that it was only -8.2% so that put it much closer to the -8%, which we said was the best end of the scale. The first quarter came in, if you wish, tilted towards the more positive end of our forecast range, but we then said the second quarter was gonna be -6%. And that's not clear yet, because it really you got a mixed opinion out there as to how bad the second quarter is going to be. The thing that really worried me and why we didn't change our forecast was that TSMC they are coming into the forecast that says their sales would decline by 9 anywhere from 9 to 4%, so that's a big range.
-4 to -9 is a huge range to work within. It goes to show the uncertainty that they're facing, and they're a bell whether of the industry overall, if you'd like to say, we do know that we are coming to the bottom of that decline. This decline started in June of last year, so we've had two quarters behind, the three quarters behind us.
The downturns typically last four quarters, so we're in the 4th quarter right now. We expect to see the whole thing come under control and start to readjust and bottom out by the end of this quarter here, so it's really dependent on what that sequential decline will end up being. Will it be -2%, -6%, -8%? It really... we're not sure. So at this point in time, we're saying that it's probably likely to be somewhere in the range of still a -7% type of number of that order of magnitude.
And if it is something like that, our forecast is actually saying -5%. So I think when we're looking at that there, that would take us into like a -20% for the year, it's a small deviation from -22%. But our whole message to industry, it is not gonna be single digit. You cannot get this year to be minus something minus low, -5, -6, even -10%. For it to be that low, you'd have to see the recovery in the second quarter. That isn't gonna happen. The market would have to go positive in the second quarter to get anywhere in a single digit range.
So our view very strongly is that is not gonna happen, because if it was, I mean, it's already June, almost June, so we're nearly at the end of the second quarter, and nobody is raising the flag saying, hey, the markets turn, everything's good, but all the books for over shipping, it's great. Nobody is saying that. So you cannot have a number in the second quarter which is positive. If it's not positive, then the whole year can't be a single digit negative number.
So it's really not just a number. The number is obviously very visible, but it's the message behind the number. That's really important. What is happening? Where are we in the cycle? And where do we expect this to be? And how do we expect it to roll out during the course of the year? That hasn't changed at all for the last 18 months.
And exactly what we said was going to happen is happening, whether it happens to the day or to the week or to the month, that's open to just the dynamics of it. But the actual nature of that downturn, the nature of the recovery that will follow, is following a well-trodden path and following a well-trodden well established industry pattern.
Q:That was this question, I will ask this question first. So you've already indicated that the first quarter of the year is closer to the bull market of the your previous forecast. And the worst -26% is less like, less likely now, so you used to, you still stress that nothing had really changed in substance, so I wonder what does the sense refers to, but what does a... nothing has changed in substance, so what does this part mean? And why do you think it hasn't really changed?
A:Right. The actual inherent dynamics of the industry hasn't changed. The full end of our forecast was driven by the fact that things would economically not deteriorate throughout the period of time, that it would just simply be a very natural progression through the cycle. We had a little bit of uncertainty there, which is why we moved the forecast to be slightly more negative.
In the fact that we were very concerned about the interest rate increases that were happening throughout the world to combat inflation, and the impact that might have on certainly consumer spending power and even businesses, as they were struggling to compensate for the increased interest charges and costs and a squeeze on their disposable income.
That we were concerned that the world might actually slip into recession in the second half of this year. And that's what led to say, if the world did go into a recession at the back end of this year, then you will be pushed closer to the -26%. If the world didn't go into recession and everything was very hunky dory and very positive, you’d be at the -18% of the forecast range there.
I think the difference was really that big unknown “how would the economy react in that time period there?” We felt the supply and demand the all those other issues there, which the industry was in control of will push you towards that middle range there the -22%. But if the economy was slightly stronger, then that will push you slightly to the left. And if the economy was weaker, and did go into a recession into the back half of this year that will push you into the slightly worst case of -26%.
Q:So the big difference really now is what will happen in the second half of this year from a global economic point of view?
And it's still uncertain. I mean it really depends on who you talk to as to whether there's gonna be an issue there or not an issue there. So far America has escaped relatively unscathed and is a strong part of demand. But on the other hand, there's still a lot of uncertainty there.
We've had a couple of minor banking crises. We still got interest rates. Their inflation is still too high, and unemployment is too low. So all of the things that they're trying to address to cool inflation aren't working at the moment, so if they have to accelerate those deaccelerating factors that could easily tilt the world into a recession, and that will have a bit of a snowfall effect around the world.
So it's very unclear, and the economists can't decide, so we still have to push that as a risk, it's not a possibility, it's a risk that needs to be looked at. So our message to investors is you gotta keep an eye on that economic risk. You gotta keep an eye on the capacity risk, because we're still building capacity. Even though we don't need it, we haven't stopped back on capacity.
You gotta look at those two factors there, because they're going to be key determinants there, the more capacity we build now, the longer it's gonna take for it to be absorbed. And the worse the economy gets, the power that is gonna take on demand. So these are the two real unknown wild cards in the equation. The rest of it is coming, is working exactly as plan.
We are liquidating the inventory. It is coming down. The unit shipment is well below the unit demand level that's fixing itself. The prices are bottomed and not declining very much anymore, so they're kind of bouncing along on the bottom there. So it's all those things are working as you would expect them to work. But we just don't know what the demand is gonna be, whether it's gonna take a hit because of an economic downturn in the latter half of this year.
Q:Also about like, like the general environment of the current situation, so you have mentioned before that the most unfavorable factor of the semiconductor in industry in 2022 is the simultaneous increase in production capacity and weak market demand. Do you think the recovery of the first quarter of 2023 would indicate the sky recovery of the market demand? Or does it indicate some changes in the general environment?
A:What I think the reason why the first quarter was not as bad as we thought it was going to be was because that inventory liquidation took a little longer to kind of kick in than it normally did.
I think part of that is due to a couple of structural differences this time around. We had a lot of long-term price and supply agreements in place with customers in the boom years. A lot of companies try to insist on those being on it, and that kind of pushed out when companies were allowed to cut back on their shipments and delayed the inevitable. I mean eventually they were gonna cancel. It's just a question of how long would it be for that to happen, so kind of making customers adhere to a pricing or a unit shipment agreement is a bit of an own goal in a way, because they don't need the parts they've already bought them.
So at one point, in time, they're not going to buy them. And it just pushed it out a little bit, so it took a lot longer for that unit demand to actually go below the trend line, then it would normally have done. And that helped keep the unit shipments after that help keep the value up, so it was a little bit artificial. I think that is now starting to happen with a vengeance in the second quarter. We're starting to see that come down quite dramatically.
I don't think anything has really changed in that regard to make the whole scenario be any real different, and to what it was before, it's just simply a push out due to the fact that we had these long-term price agreements. And I think a lot of sectors like logic, for example, most logic circuitry now is made to water, it's all system on chip type parts, and they all have a long factory lead time. The time in wafer fact, for those is at least 4 months, could be up to 6 months.
That means that even though you wanted to cut back in June or July of last year, you couldn't actually do it because you've already got the factory full of your parts. It just has to you either scrap them and throw them away, or you keep making them until you run out and you only run out in December or January.
Again, it kind of delayed the impact of when you could make this unit adjustment. So that's a structural difference, which is slightly different this time to last time more of the parts being customized. Therefore, you got a factory committed to that part. And the either gets thrown away in which case somebody has to pay for that scrap, or you have to just let it roll and adjust it later on.
Q:I've missed a question, it's about UK Chip Act. So the critic says unbranded as the UK government delayed ￡1 billion package of support for the semiconductor industry as insignificant. So based on your understanding, what would be your suggestion for the current, you know, the Chip Act of the UK?
A:But I don't think they really called it a Chip Act, because that kind of puts it into the same kind of scenario of what's happening in China and the US and in other parts in Korea, in other parts of the world.
If you compare that $1 billion investment that the UK is putting in compared with the $50 billion in China over three years, in the US over 5 years, in the EU over 10 years. It is obviously insignificant when measured against that. But I think that's an apples and oranges kind of measurement there. But I think what you need to know is to think about is the UK has for a long period of time, actually lacked a strategy for its high-tech businesses, and including semiconductor,
For a very long time, I mean you are literally talking 30 years or something like that. It's kind of supported the R&D, the research to a certain extent. There's a lot of support for research in the UK and after that, research comes an awful lot of technology, which is world class and a lot of it is bought by world class companies because it is good.
But what they're trying to do, I think, with this billion-pound investment, is to try to get a coordination to what are we doing in this research? Can we bring it up one level in terms of turning it into a pilot line to take it to the next level up the value chain and to ask the users to determine what should we be doing? Should we be going into high volume production? Is there a need to have this here?
Not to compete with the likes of TSMC or Samsung with today's products, but to compete at the leading edge for tomorrow's products, because that's where the research is being done in the UK, if you want to commercialize that, you're looking at something that's 5 to 10 years down the road. And this billion-pound is aimed to shore up the research money that's going on, and also to help develop a strategy as to what should we be doing with a UK chip act in 5 or 10 years’ time, where we know now, what we're doing, why we're doing it.
But for the UK to spend 50 billion over the next 10 years on a parallel chip pack would be suicide, it would be crazy, because they don't know what to do with it. So the first step is to find out, here's what we're good at, here's what we're doing. Can we move it up the value chain? And at the moment, the UK is very small. It's probably, I would think, well under 1% of the world production, well under 1%. So you got potentially a long way to go, but it would be silly to try to become a competitor to a TSMC or a competitor to a Samsung or SK Hynix or something like that.
But when you're looking at the next generation of technologies where there is no winner when nobody has a foothold. Why not? I mean the UK is just as capable of being a supplier in the future technologies as anybody else is. And you have to remember, Taiwan was a tiny island 30 years ago when TSMC was founded with no electronics industry and no semiconductor industry, and it's smaller than the UK so just because we're a small island, doesn't mean to say you can't be number one in something.
But the question is, what is that something? And it's not today's product. It would be tomorrow's product. That's why the investment in R&D is so crucial. But now the difference is R&D with a purpose, what could we do with that? What is the potential developing that into a world class technology?
Yes, I think so, it's more of an investment in understanding the future, is a stepping stone. Now it may be the first step and only step in a... I don't know. I mean it depends on lots of things, but it could be the one and only step. And then we go back to giving up, but it could also be the first of several steps.
Q:Great, my last question, you have caught before saying that now it's time to start preparing for the next turnaround and making counter psychological investment and gaining first mover advantages. So could you elaborate more on this part?
A:So I think the only way to really manage this cycle efficiently is to invest counter cyclically. Now is the time you should be building new factories, because then they'll be available in 2 years’ time, that would be just at the time when the industry is going to start to feel under a supply crunch in terms of the not being enough capacity. And you'll be there with your capacity, so you will get all of that business that the other people can't deal with, because they have run out of capacity by then.
So that's the classic way to manage this supply and demand cycle, is to invest when the market is down and to stop investing when the market is increasing, which is counterintuitive to what your heart tells you to do. But it should be what your wallet tells you to do, because that means that you will have capacity when the market is coming to an acceleration and your competitors want, because they want to be invested at that same time.
But that's hard to do because you have to have shareholders who are willing to actually allow you to invest counter cyclically and to do that. But if you do, you will be the winner and companies that do that, I think, certainly the Korean companies, SK Hynix and Samsung tried to do that, TSMC tries to do that, and they are successful. They really do reap the benefits of that.
But it's very hard because you do have a shareholder to answer to. And your shareholders will simply say, why are you spending all this money building new factories when there is no demand? And that's very hard question to answer, except trust me, and trust me doesn't allow you to spend $10 billion. You need a little bit more than just trust me.