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  • Writer's pictureMilo Hsieh

Global PC Demand Decline Heavily Impacts Taiwan’s Semiconductor Industry

Updated: Oct 16, 2023

Background

In the last quarter of 2022, worldwide shipments for personal computers saw a sharp decline as a result of “global recession, increased inflation and higher interest rates”. The 28.5% decrease from the fourth quarter of 2021 was the largest quarterly shipment decline to be ever recorded since Gartner began tracking the PC market in the mid-1990s. For the entire year of 2022, PC shipments only totalled to 286.2 million units, indicating a 16.2% decrease from the 2021 tally.

The PC industry saw significant growth between 2020 to 2021 as a result of the pandemic. At that time, the market saw a high demand for PCs but low PC supply due to supply chain disruptions caused by the pandemic. Manufacturers started building their PC inventory by the start of 2022, causing a bottleneck in the PC market. As pandemic restrictions eased, the increased inventory levels quickly turned into excess as the demand, conversely, began to dip.

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The high excess plus consumers’ disinterest in purchasing new PCs contributed largely to the decline in global PC shipments. “Since many consumers already have relatively new PCs that were purchased during the pandemic, a lack of affordability is superseding any motivation to buy, causing consumer PC demand to drop to its lowest level in years,” Mikako Kitagawa, Director Analyst at Gartner, said of the phenomenon.

In the U.S. alone, the PC market saw a steep decline by 20.5% in the fourth quarter of 2022. Even as vendors offered significant discounts on PC units during the holiday season in an attempt to dispose of existing inventory, consumers were still “not swayed to spare their money” due to worsening economic conditions. The downward trend in the PC market is expected to continue until the beginning of 2024.

Breaking Down the Value Chain

As contract manufacturers for Apple, Taiwan’s tech companies handle the majority of Apple’s entire production of iPhones, Macbooks, and iPads. Globally, Taiwanese tech companies produce 80 percent of the world’s supply of PCs, 90 percent of servers, 80 percent of video games, and 60 percent of semiconductors utilized in various industries. Nineteen Taiwanese tech manufacturers generated only a combined revenue of $35.3 billion US dollars, showing a 18.5% decline on the year. This is the biggest drop in revenue for Taiwan’s tech giants since 2013.

The monthly revenue report of Taiwan Semiconductor Manufacturing (TSMC) is reflective of the challenges Taiwan’s semiconductor industry is set to face as the downward trend continues. TSMC reported an “almost an 11 percent month-over-month decrease in revenue” for March 2023 and at least a “15 percent year-over-year decrease” from March 2022. According to forecasts reported by Fubon Investment Services, TSMC’s revenues will continue to decline in the second and third quarters, yearly revenue for 2023 is expected to decline by 5.2 percent while net profits will drop by 23.4 percent. TSMC plants began to operate at full capacity last year, but some plants have now reduced operations at their production lines by almost 50 percent due to weak demand for semiconductors from the PC industry.

It’s Not Just TSMC

However, it’s not all about TSMC. Taiwan’s economy is also dependent on lower-end semiconductor nodes produced by firms like UMC, as well as original equipment manufacturers and original design manufacturers (ODMs). Taiwan’s tech manufacturers are the biggest suppliers of PC and PC components to some of the largest players in the global tech industry. As worldwide PC demand continues to decline, Taiwan’s integrated circuit industry withstand the worst of the crisis.

American PC producers such as Apple, Microsoft, Dell, and HP rely heavily on other American integrated circuit firms, such as NVidia, AMD, Intel, etc to design their key graphic and central processor components, which manufactured in Asia by firms such as TSMC and Samsung. Taiwan's status of a key PC manufacturing hub extends more than just TSMC, as original design manufacturers like Winstron, Quanta, Pegatron, etc, assembles computer parts into finished products for American PC producers to sell under their brand.

With deep entanglement between the U.S. market, which has largely offshored its production to Asia, many markets such as South Korea, China, and Taiwan are affected. However, given the Taiwan economy’s dependence on trade to a degree much higher than these larger, more diversified economy, Taiwan stands as one of most affected by recent downturn in global PC sales.

As of 2020, Taiwan’s semiconductor industry contributes almost 30 percent of Taiwan’s gross domestic product (GDP), whereas exports accounts for (X) percent of Taiwan’s GDP. Semiconductors make up a crucial component of electronic chips that are used for computers and other electronic devices, such as electronic vehicles. Taiwan’s economy is highly export dependent, hence the sharp global decline in its flagship product will likely take a toll on its economy.

Is This a Long Term or Short Term Trend?

While the numbers may seem abysmal for tech companies, the decline is not expected to last for long. As suggested by Gartner, while global PC demand decline is expected to continue this year, any uptick or improvement in the market may be seen as early as the first quarter of 2024. Gartner’s findings are confirmed by Counterpoint Research that the “muted” demand for shipments in 2022 reflects consumer behavior that will likely carry on this year.

“At 286 million units, the total PC shipments for 2022 also reflect a muted global PC demand with four consecutive quarters of YoY shipment declines. Therefore, we are not expecting a decent rebound in the first half of this year,” Counterpoint Research stated in their report. Aside from the increased inflation and overall negative economic conditions globally, consumers who purchased new PCs during the PC pandemic boom during 2020-2021 are still enjoying relatively competitive models as the latest units lack appealing new features that have failed to entice consumers to purchase newer PCs in lieu of their old ones.

Counterpoint Research, however, suggests that once the PC market sees a gradual rebound in the coming years, PC shipments will then reach higher than pre-Covid levels “thanks to the continuous work environment and lifestyle changes and delayed procurement from both consumer and commercial sectors after H1 2023.”

Thus, as much as recent numbers may suggest warning signs for Taiwan’s economy, a longer-term look will show that the industry which Taiwan’s economy is based upon will eventually recover. In a global economy characterized by high interest rates, especially difficult for Taiwan’s capital-intensive integrated circuit industry, recession trends, and potential falls in consumer demands, it could be said that current situations are about as bad as it could be. With trends in AI demanding more processing power than ever, an eventual recovery can be expected in this longer look.

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