The great semiconductor boom and bust


TSLombard with the note:

The chip shortage is adding to inflationary pressure and turbocharging the recovery of EastAsian exporters. Although a secular demand shift is under way–embedding semiconductors into the price of a much wider array of goods and services–integrated circuit capex and prices are still highly cyclical. The boom will be followed by disinflationary price pressure,as new production comes online. Looking beyond the cycle,as the chip supply chain splits and Moore’sLaw slows, a 20-year secular deflationary trend for semiconductors and the devices that use them is likely to halt and may even reverse.

The semiconductor industry is highly cyclical. Periods of strong global growth raise demand, prices, and capex. The capital-intensive nature of construction, and the need for high-capacity utilization to generate an acceptable ROI, mean supply tends to lag demand, leading to long periods of under/over-capacity. The result is high cyclicality (around a secular trend) and periods of greater/lesser pricing power (Chart 2).


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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.