The decline in semiconductor demand this year is more severe than previously estimated. Compared to the previously expected single digit decline, the current decline is around two digits.

However, for buyers, the market is improving. According to Supplyframe, the delayed economic recovery means that the favorable situation for buyers will continue into the second quarter. But as inventory runs out in the third quarter and some end markets begin to rebound, the second half of the year may shift in favor of "sellers" (i.e. suppliers).

The global procurement activity of all products tracked by Supplyframe decreased by 20% in April 2023. All regions are affected. Source: Supplyframe Product IQ Demand Index

Unlike previous cycles of ups and downs, so far, excess inventory of components has not flooded the market, thereby lowering prices. Manufacturers are clearly retaining inventory in anticipation of future shortages. According to data from consumer analysis company Lytica, the overall price of electronic goods has been declining since April, entering the buyer's market.

Lytica founder, chairman, and chief technology officer Ken Bradley said, "In the past few weeks, we have seen a significant decrease in the prices of many components." "Our customers have also been providing feedback on the content displayed in our data, and we expect this trend to continue for some time."

How much excess is there?

Perhaps it is possible to analyze the actual excess inventory in the supply chain from the financial reports released by electronic product manufacturers for the first half of 2023. Many companies' public data can be traced back to the end of 2022:

• HP Enterprise's inventory for 2022 was $5.161 billion, an increase of 14.41% compared to 2021.

• Intel's inventory increased to $13.224 billion in 2022, an increase of 22.72% compared to 2021.

• AMD's inventory for 2022 was $3.771 billion, an increase of 92.89%.

• As of January 31, 2023, NVIDIA inventory was $5.159 billion, an increase of 98.04% in 12 months,

• NXP Semiconductor's inventory in 2022 was 1.782 billion US dollars, an increase of 49.87% compared to 2021.

According to Lytica's prediction, the surplus of electronic components will lead to price fluctuations. Bradley further explained that two factors contributed to this prediction. One is the cooling of demand, and the other is that manufacturers have made excessive purchases due to supply chain shortages& quot; As prices weaken, an increase in inventory is expected to lead to a decrease in consumer goods prices& quot; He said.

But the overall economic situation is causing concern for many analysts. The latest economic report from IPC shows that despite high inflation, significant interest rate hikes, and significant resistance from some high-profile bank failures, the US economy remained resilient in the first half of this year.

IPC Chief Economist Shawn DuBravac said in a statement, "This elasticity may not be sustainable." "Consumer spending was strong in the first quarter of last year, with an annual growth rate of 3.8%, while it only grew by 1% in the fourth quarter. There were many factors that boosted consumer spending at the beginning of this year, but these forces may weaken in the second half of this year."

For example, the annual growth rate of credit in the first quarter was 9.6%.

Based on the data from the past two months, the outlook for demand growth seems bleak. According to ECIA's May terminal market data, buyer demand in most industries remained stable. The sentiment surrounding the aerospace/military/space markets shows a certain degree of optimism, but the prospects for the industrial, consumer, and communication markets are negative. The automotive market has achieved a rough balance between good and bad sales expectations. The automotive industry is still limited in many product areas, especially with a high demand for sensors.

According to independent distributor Fusion Worldwide, TDK plans to double its production of high-precision sensors for automobiles to ensure sufficient supply. These sensors play an important role in automotive applications by providing accurate and reliable measurements of various parameters such as pressure, temperature, humidity, and position.

Fusion Worldwide added that the demand for PTC thermistors in the automotive and consumer industries is constantly increasing due to their numerous temperature monitoring applications. The automotive industry uses these sensors to prevent engine overheating, while the consumer industry utilizes these sensors in smartphones and wearable devices to ensure the safety and lifespan of electronic devices.

Different views on economic recession

Supplyframe stated that concerns about the recent economic recession have subsided. But IPC The heads of Lytica and risk management company Resiinc have expressed concerns about interest rates and holding inventory costs. If inventory procurement is financed through loans, the cost of maintaining a $1 component may exceed the price of that component. The company can resell these parts at discounted prices or keep them until the market rebounds. Lytica's Bradley stated that overall, there is a lot of hesitation in the electronics market.

He explained, "The company knows what opportunities it has and what opportunities it is pursuing." "However, it is never easy to determine how real these opportunities are. This leads to hesitation when buyers place orders. Due to hesitation in investing, interest rates can be affected."

IPC predicts that the second half of this year will be more difficult than the first half, and the economy will enter a recession. DuBravac explained that the New York Fed's recession probability model currently shows a 70% chance of the US economy falling into recession within the next 12 months. The current consensus is that there will be a small-scale, brief recession in the second half of 2023. He concluded that although a recession in the United States seems imminent, it is difficult to determine whether it will be short-lived.