Taiwan-based IC design houses experienced high revenue and profits in 2021, but entering into 2022, many companies clearly felt growth easing. Customers restarted set off-season stock adjustments and no longer blindly chase after materials in the slow season. The unlimited growth of the post-pandemic era has returned to the traditional cycle of on- and off-peak seasons. Under these circumstances, attention is now on whether or not the IC design industry will continue to see the prosperity of 2021 in 2022 and avoid a recession in the event of a high base period.

Several IC design houses have said that based on their years of experience in the market, they do not consider the high growth in 2021 as typical. Starting in the second half of 2021, actual demand was no longer only a one-sided positive performance. While there were mounting negative factors, it did not mean everyone believed performance in 2022 would take a bad turn. Momentum for upward growth still exists. In fact, more than half of Taiwan-based IC designers still believe revenue in 2022 will maintain double-digit growth, under the condition the base period in 2021 is high. In this case, there is a chance profit will maintain slight growth and is unlikely to decline.

The optimistic outlook of IC design houses is not without merit. Despite reports about poor prospects for notebook and mobile phone applications, many Taiwan-based IC design houses believe because base period growth numbers in 2021 were unusually high unless shipments for consumer electronics in 2022 take a nosedive, the amount customers will need to pull in to maintain basic inventory will not change much. Additionally, the wave of product upgrades will drive shipments of more high-unit-price products.

Many Taiwan-based companies also hope to gain more market share through the trust they have garnered from customers by way of good product cost-performance ratio and good delivery performance.

Regarding costs and the supply and demand situation, industry outsiders are generally concerned that IC design houses can no longer pass on costs to customers as they did in 2021, which could have an immense impact on profits. The general consensus within the industry is that it is still possible wafer foundry suppliers could increase prices for specific popular processes; however, the price increase trend in 2022 will not be as strong as in 2021. Adjusting product portfolios is more than enough to make up for rising costs.

Additionally, supply and demand in the chip market are balancing out, which is an overall good thing for IC design houses. Even if the materials shortage has brought huge growth to the entire industry, hunting down materials and the various material shortages over the last two years have kept IC design houses overly busy. Delivery of new technology products has also been affected.

From 4Q21 to 1Q22, the market has been flat. Many manufacturers have taken this opportunity to adjust their inventory levels to cope with the traditional busy season in the second half of 2022. The weakening of some consumer applications has also provided some slack for mature processes. Additionally, it has also allowed them to lift the short supply warning for some products that are still out of stock, as well as allowing companies to acquire more production capacity for new products to fight for more market share.

However, all of this is based on the premise that no "black swan" appears on the market. Consumer applications can decline slightly but not significantly. Furthermore, many Taiwan-based manufacturers will start to see their efforts in the automotive electronics market come to fruition in 2022. As such, the materials and labor shortage in the automotive supply chain must be further solved.

Demand in the commercial market is closely related to overall economic conditions. Although there is a clear trend toward technical upgrades, if the economic outlook is bleak and capital expenditures shrink, it is likely that demand will not meet expectations.

To maintain growth, companies will have to follow what others are doing and make adjustments one at a time based on the latest developments in the overall environment.

By DIGITIMES