Silicon Wafers. SUMCO Sounds The Alarm As Inventory Continues To Climb

Silicon wafer area shipments declined 10% QoQ in Q323 but inventory remains at historical highs

Back in May 2023, we highlighted our growing concern about the historically high levels of silicon wafer inventories.

One of our key datapoints in that article centered around SUMCO’s forecast for global 300mm silicon wafer demand versus capacity. The company had just published an update to their previous forecast and it clearly showed an increasing gap between demand and capacity. For example, it showed that demand in 2023 would be just 86% of available capacity, down from 94% three months earlier.

Now, SUMCO has just released a further update to this forecast in their latest earnings presentation and it shows that their outlook has gotten considerably bleaker in the intervening months. For example, 2023 demand for 300mm wafers has fallen to just 80% of available capacity.

Worse still, for 2024, demand has fallen from 90% of available capacity to just 76%. Put another way, as a result of a combination of planned green field investments coming online in the face of declining demand, the industry will have almost 25% over capacity for 300mm silicon wafers in 2024.

While SUMCO did not provide a similar forecast for 200mm and smaller diameter wafers, anecdotal evidence would suggest that the over supply situation will be even worse there. This view is supported by commentary from Shin Etsu in their latest earnings report:

Due to customer production adjustments, the wafer market was negative for all diameters compared to the previous quarter. Compared to last year's peak, the smaller the diameter, the greater the decline, making for a difficult situation. Our sales are also moving in line with this market trend.

In conjunction with their downbeat outlook, SUMCO provided quite a bit of context in their prepared remarks. In their own words, that context was “depressing”. Both Siltronic and GlobalWafers also had earnings releases recently. The former has been consistent in its outlook since early 2023 and is on track for a YoY revenue decline of 15% to 17%. GlobalWafers is faring better. Although their revenue has declined slightly in each of the past two quarters, their YTD revenue is actually still up 3.8% YoY. Furthermore, the most dramatic phrase that CEO Doris Hsu used during the earnings call was that demand is “a little bit soft”. More on that later.

What exactly did SUMCO say that was so depressing during their earnings call? Why is GlobalWafers performing better than their peers, and is this outperformance likely to last? How big a deal is the worsening over capacity situation as we head into 2024?