If history is a guide, a glut is on the way. The only question is when
Insights, a research group, reckons that, across the industry, capital spending rose by 34% in 2021, the most since 2017. That torrent of money is welcome news for the industry’s customers, who have been struggling with shortages for over a year. For the industry itself, it is the latest iteration of a familiar pattern. Bumper revenues, like those reported by Intel on January 26th and Samsung the next day, compel companies to expand capacity.
Soon, many analysts think. Demand for smartphones may be cooling, especially in China, the world’s biggest market. Sales ofs, which boomed during covid-19 lockdowns, also seem poised to weaken, says Alan Priestley of Gartner, a research firm. A survey by Morgan Stanley, a bank, found that, partly thanks to the shortages, 55% of chip buyers were double-ordering, which artificially inflates demand. High inflation and looming interest-rate rises could hit economic growth—and chip demand with it.
The current cycle may differ from previous ones for another reason. The shortages, and America’s tech-flavoured trade war with China, have reminded politicians how vital chips are to the modern economy—and how over-reliant their supply is on a few giant firms.
But governments’ favoured way to deal with the over-reliance is to lure more chipmaking home, mostly from East Asia, with subsidies. On January 25th America’s Commerce Department issued a report to that effect, urging Congress to pass a bill, already approved by the Senate, that includes $52bn in handouts for chipmakers. Mark Liu,’s chairman, was frank in 2020 when he said such subsidies were vital to persuade his firm to build a new plant in Arizona, one of only a few outside Taiwan.
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