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When will the semiconductor cycle peak?

Busts follow booms in the chip business. Governments could make things worse

Amid a chip shortage that has hobbled producers of everything from toys to wind turbines, chipmakers are on a spending spree. On January 13th Taiwan Semiconductor Manufacturing Company (tsmc), the world’s biggest contract manufacturer, said it would spend up to $44bn on new capacity in 2022. That is up from $30bn last year, triple the number in 2019 and ahead of earlier plans to spend over $100bn in total over the next three years. Intel, an American rival, plans to burn through $28bn this year. On January 21st it said it would build two big new factories in Ohio by 2025 at a total cost of $20bn. An option to build six more later would take the overall price tag to $100bn. Samsung of South Korea, tsmc’s closest technological rival, has hinted that its capital spending for 2022 will surpass last year’s $33bn. Smaller firms, such as Infineon in Europe, are also splurging.

ic 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. But because demand can change much more quickly than the two or more years needed to build a chip factory, such booms often end in busts. The chip business has swung between over- and undercapacity since it emerged in the 1950s, observes Malcolm Penn of Future Horizons, a firm of analysts (see chart). If history is a guide, then, a glut is in on the way. The only question is when.

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