Chip makers increase investment for 2022 amid shortage

• TSMC, Intel aim to invest about 19% and 47% more on expanding chip capacity in 2022. Samsung plans to invest about US$150bn in its foundry unit until 2030.

• Chipmakers are boosting capacity to meet increasing demand from new sectors, such as IoT and automotive.

• Governments will also pile on subsidies to incentivise domestic production.

• The current supply crunch, however, will continue through 2022 as the increased investment will take at least three to four years to reflect on capacity.

In end-January 2022 the world’s top three foundry companies (semiconductor manufacturers) -—Taiwan Semiconductor Manufacturing Company (TSMC), Intel and Samsung—announced plans to increase investment significantly for 2022. TSMC, which doubled capex from nearly US$15bn in 2019 to US$30bn in 2021, has set aside US$44bn for 2022. Intel will spend half that amount for its foundry business this year. Samsung also increased its capital expenditure for the chip manufacturing unit in mid-2021 from US$115bn to US$151bn until 2030.

These announcements are only the start to the medium-term strategy where chip companies are looking to increase manufacturing capacity. The chip shortage that began in mid-2020 and disrupted production for most global automakers in 2021 has prompted this increased spending. We expect the chip crunch to continue in 2022. Another factor behind the high capex figures is the emergence of new technologies such as Internet of Things (IoT) and autonomous cars that are driving demand for advanced chips.

New technologies in focus

The top three semiconductor companies recorded a change in revenue growth patterns. Traditional chip applications grew at a slower pace but demand for high-performance computing (HPC) chips, used in artificial intelligence, smart manufacturing, autonomous cars, augmented/virtual reality applications, registered robust growth. For both TSMC and Intel, semiconductors used for new technologies such as Internet of Things (IoT) are outpacing  traditionally stronger revenue segments such as chips for desktops, notebooks and smartphones.

HPC recorded the highest sales growth (of 34%) for the December 2021 quarter for TSMC. South Korea’s Samsung, too, recorded higher sales from HPC applications for the quarter. Intel sold more chips to clients in the data centre and Internet of Things (IoT) segments in the final quarter of 2021. All three semiconductor firms have recognised the shift in market demand from traditional applications to more advanced technologies. IoT and automotive appear to be the main focus areas for the companies in 2022. In fact, TSMC expects the automotive segment to be one of the main revenue drivers in 2022, as global automakers look to increase chip inventory levels to avoid the shortage-led production cuts announced in 2021.

Although Intel may have lost its competitive edge to TSMC in terms of advanced chip technology, the company is looking to capture a significant share of the autonomous vehicle market early on. It acquired Mobileye in 2017 for US$15.3bn, and it is planning to complete an initial public offering for the segment by the middle of the year. In 2021 Mobileye saw its revenue grow by 40%, but they still represent under 2% of Intel’s total revenue.

Governments will also pile on chip subsidies 

In addition to what foundry players are investing, countries are looking to onshore production of chips and secure supply chains for industries such as automotive and consumer electronics. Some noteworthy developments in 2022 are:

• The US is set to formalise legislation such as the US Chips Act that includes US$52bn worth of subsidies. We expect this to happen only by the second quarter of 2022.

• The EU unveiled details of a similar funding plan called the European Chips Act that entails investments worth US$49bn to increase the region’s share in the global chip market share to 20% by 2030.

• Japan has set aside US$3.4bn to cover half the manufacturing costs of a new fabrication plant that will be jointly built by TSMC and Sony in 2022.

In terms of chip supplies, however, we expect the shortage to continue through 2022. The increased spending—by governments and companies—will take effect over a period of three to four years, which is how long it takes for a chip factory to become operational.

The analysis, forecasts and data featured in this article can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries.