[Core Vision] Can the semiconductor industry return to the blood when it comes to a small upsurge of layoffs?

If people criticize capital for pouring milk into the river when there is a high degree of overcapacity, of course, it is possible to see a situation where companies have no orders and can’t afford to support employees and lay off workers.

The semiconductor market is still stuck in a recession, and the demand in some sub-sectors has fallen off a cliff, so that many chip markets have suddenly cooled down. On the other hand, the international situation is even more contradictory, the anti-globalization trend is gradually taking shape, the epidemic is repeatedly infested, and the news of companies in the industry shutting down production has come one after another. Even the most profitable semiconductor manufacturing plant, TSMC, was forced to shut down some lithography machines to prepare for the winter. In the second half of this year, Intel and ARM took the lead, followed by second- and third-tier companies such as Seagate, Megvii, Husqvarna, and Minglue. The wave of layoffs penetrated into the semiconductor industry.

The cold is forcing the semiconductor industry to lay off workers in a panic

The International Monetary Fund (IMF) updated its “World Economic Outlook Report” in June and lowered its economic growth forecast again. It is expected that the world economy will only grow by 3.6% in 2022. Challenger, Gray & Christmas, a global employment consulting firm, also said in a report that the technology industry laid off 4,044 jobs in May, far higher than the 459 layoffs in the January-April period, setting a record for the highest layoffs since December 2020. Such an economy The situation is like a replay of the nightmare of 2020.

TSMC’s rare move to shut down some lithography machines has led to speculation, which basically laid the main theme of the “miserable” semiconductor industry in the second half of the year. TSMC occupies an important position in the global semiconductor supply chain. Relevant supply chain sources admitted that some of TSMC’s recent production capacity has “slowly become less full”, including 8-inch and 12-inch production capacity. Although there have been no layoffs, TSMC officials pointed out this month that due to unsmooth supply and changes in market demand, the company’s capital expenditure this year has dropped from $40 billion to $44 billion to about $36 billion, a drop of 20%. In addition, Wei Zhejia, president of TSMC, rarely sent a letter to encourage employees to take vacations.

Subdivisions strongly related to consumer electronics bear the brunt of large-scale and planned layoffs in the industry. Intel recently said it plans to lay off “targeted” jobs, involving thousands of people, as a way to cut costs, or to split the two major departments of chip design and chip manufacturing. Another technology giant, ARM, also had to increase revenue and cut costs after it failed to sell itself, reducing the 3,500 employees in its UK company to 2,800.

The manufacturers in the storage track are the worst this year, maybe not one of them. U.S. hard drive maker Seagate’s board of directors has approved a restructuring plan to reduce costs at its first fiscal quarter meeting in fiscal 2023. The plan includes layoffs of about 3,000 jobs – about 8 percent of the global workforce. Dragged down by slumping demand for memory chips, South Korean chip maker SK Hynix said recently it would halve its capital spending next year, after previously reporting a 60 percent drop in third-quarter profit. In addition, the US manufacturer Marvell China has recently been laying off large-scale layoffs, and some specific compensation plans for Marvell’s layoffs have also been reported in the industry. Marvell is currently operating well, and the real reason for this layoff is still unknown.

The panel industry’s prosperity has reversed this year, and panel manufacturers have also encouraged employees to take vacations. Some time ago, due to oversupply in the panel market, panel prices continued to decline, and some manufacturers have reduced their production capacity to 5-7. Recently, Innolux, a Taiwan-based panel manufacturer, has fallen into the suspicion of “mandatory employee leave” and may face a fine of up to one million yuan.

In fact, in addition to the semiconductor field, the wave of layoffs in the new energy vehicle field led by Tesla also started the relay run in the second half of the year. As early as the first half of the year, the new domestic automakers such as Ideal and Xiaopeng were under pressure, and they have extended the first knife to increase income and reduce expenditure to fresh graduates. Electric car maker Rivian recently announced that it will lay off about 6% of its 14,000 employees, involving about 800 people.

sluggish demand, blind expansion backlash

The pessimistic attitude towards demand in the semiconductor market continued this year, and even senior headhunters felt tired and changed their faces after serving customers for one or two years. Orderly shrinking non-core businesses and suspending non-operating investments are the mainstream trends in the semiconductor industry in the second half of the year.

Operational and supply challenges have existed for a long time. In the face of uncompetitive non-core businesses, semiconductor manufacturers can only make choices or actively adjust their business structures. Taking Intel as an example, market research agency Gartner recently announced that global PC shipments in the third quarter dropped by 19.5%, the worst single-quarter performance since 1995. The PC market slump has slammed Intel’s main business. Intel’s gross profit margin this year or will drop to 49%. CEO Pat Gelsingerr told Reuters that “people optimization” would be part of the cost reduction plan. Intel said it will drive cost reductions by $3 billion in 2023.

Similar to Intel, Philips is laying off workers after quarterly profit fell to its lowest level in two years and a near-term recovery looks unlikely. Philips reported a net loss of 1.33 billion euros in the third quarter, compared with a profit of 2.98 billion euros last year. Philips said its performance this quarter was impacted by operational and supply challenges, inflationary pressures, the coronavirus outbreak in China and the Russian-Ukrainian war, hoping to control labor costs and improve free cash flow.

Not only companies closely related to consumer electronics are struggling, but companies in emerging fields such as cloud computing, AI chips, and VR/AR have stalled in recent years, and industry elimination has also begun.

ARM was expanding blindly at that time. When Softbank took over the British ARM company in 2016, it would double its workforce by hiring 1,730 new employees. Recent announcements show that 40% of the laid-off employees are from this group. ARM makes money by selling licenses to make its chips to Apple, Samsung, and other companies, but doesn’t make any products itself. Selling blood does not make blood, perhaps only bloody sacrifice. Meta, which has shown great ambitions in the virtual and augmented reality (VR/AR) space, has fallen more than 61% amid macroeconomic challenges and the company’s overall underperformance. Meta is cutting costs by 10% or more in the coming months.

As Qualcomm CEO Ammon said, the semiconductor industry is indeed facing multiple challenges in the short term. Technology companies are now starting to reckon with their budgets, with companies generally adjusting productivity and pricing in the face of a deteriorating macroeconomic environment and continued uncertainty related to COVID-19 measures.

Eliminate all odds and liberate productivity

Looking ahead to the next few quarters, capital expenditure cuts and inventory level adjustments for manufacturers such as wafers, PCs, storage, and panels are expected to stabilize the market, although margins will be severely eroded. Since manufacturers generally enter the recession period with lower profit margins, some manufacturers may face losses, and it is not ruled out that there will be reorganization and reshuffle among manufacturers.

On the backside of the wave of layoffs, the deep glut of semiconductor technical talents has always been difficult to fill. A September McKinsey report showed that U.S. companies will face a shortage of 300,000 engineers and 90,000 technicians in the next year. From car manufacturing to power, consumer goods and healthcare, semiconductor shortages have stifled production and innovation. It is expected that in the future, the semiconductor industry will coexist with hot and cold, and layoffs while lacking people.

At the same time, the industry generally faces the situation of continuous expansion of talent gap and uneven heating and cooling. In fact, in a highly competitive environment, it is harder than ever for semiconductor companies to attract and retain talent. In the report, McKinsey noted that semiconductor makers must make engineers see prospects in the field of expertise, put the promised money to work, and create career opportunities that are at least as attractive as tech giants. That said, semiconductor companies need to make bold decisions to ensure long-term tenures for the best and brightest. At present, the talent strategy of semiconductor companies tends to be leaner, more efficient, and more focused, and the talent market is looking for a balance between excess and lack of talent.

(Proofreading / Li Mei)