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Chips Producers Now Face Overcapacity Risk

Lead times have decreased because of weaker demand and new investment

The semiconductor super cycle of booming demand and undersupply over the past two years is coming to an end, forcing chip companies to announce cost savings and reassess their long-term planned investment campaigns.

The average lead time for all semiconductors — the difference between when a chip is ordered and delivered — fell from 26.3 days in September to 25.5 days in October, according to data from Susquehanna International Group (SIG). This is a marked difference from a prolonged period of increasing average chip lead times, which rose from 13.6 days in May 2020 to 27.1 days in May 2022.

Christopher Rolland, a semiconductor analyst at SIG, says that the lead times have come down due to a combination of decreased demand and, to a lesser extent, increased supply.

Rising lead times was tracked by massive investments announced in the semiconductor sector, as chipmakers rushed to build factories to serve expected long-term demand and make use of Western government incentives to boost local chip production capacity, such as the US’s $52.7bn Chips Act. A record $83bn of capital was pledged in 2021 to foreign direct investment (FDI) projects in the semiconductor sector, according to fDi Markets figures.

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