2024 set to be crucial year for global semiconductor industry

Today’s top stories

• Washington said it was “not looking for a war with Iran” after it blamed Tehran-backed militants for a drone strike that killed three US soldiers in Jordan. Here’s our Big Read on Tehran’s recent flexing of muscles in the Middle East and an explainer on the “Axis of Resistance” pitted against the US.

• The forint slipped against the euro and Hungarian bond prices fell after the FT reported the EU’s intention to sabotage Hungary’s economy if Budapest blocks fresh aid to Ukraine at a summit on Thursday. Budapest vowed to defy the EU’s “blackmail”.

• A Hong Kong court ordered China’s Evergrande to be wound up, opening a new phase in the collapse of the world’s most indebted property developer. Its default two years ago led to a cash crunch for Chinese developers and has had a serious impact on the country’s economy — a situation that could yet worsen, says the Lex column (for Premium subscribers)

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Good evening.

News that a low-cost chipmaking machine from Canon could start shipping as early as this year cannot come too soon for a $600bn semiconductor industry that finds itself at the centre of geopolitical tensions between the US and China, which in turn is ramping up production capacity.

Canon hopes the new machine — which stamps chip designs on to silicon wafers rather than etching them using light — can undercut longtime industry leader ASML in providing the tools to make leading-edge semiconductors. It will also be a shot in the arm for Japanese manufacturers, which have lost ground to rivals in South Korea, Taiwan and, increasingly, China over the past three decades.

As Chris Miller, the academic and author of Chip War, argues in the FT today, the west needs a plan to cope with the forthcoming leap in chip production capacity from China — helped by generous subsidies — which is expected to double over the next five years.

Since western restrictions on the exports of chipmaking equipment to China mean that it can’t make the most advanced processor chips, much of this production will be of the more basic type used in cars, household goods and consumer devices. The resulting supply glut, he argues, is likely to drive down prices — and western companies’ profits.

Back in Canon’s home market, Japan is taking direct action through a $6.4bn investment in a semiconductor materials supplier via a government-backed fund. Tokyo says it will strengthen the country’s global competitiveness in the production and development of cutting-edge chips, but, as our Big Read details, for some it rekindles memories of heavy state intervention of the past.

Japan’s move follows the introduction of subsidies for domestic manufacturers in the US through the Chips and Science Act, in the EU with its European Chips Act; and in the UK through its National Semiconductor Strategy. Supply chain foul-ups during the pandemic had exposed how Europe in particular had become over-reliant on chip imports from abroad.

Analysts will also be closely monitoring earnings announcements this week from the likes of Qualcomm and AMD, which should give broad clues on the health of the industry. Some argue the rally in US chip stocks — Nvidia and AMD have doubled in value over the past year — masks a more muted outlook in other parts of the tech sector. Disappointing forecasts from industry bellwethers Intel and Texas Instruments last week have added to doubts about a broader recovery.

Still, the Semiconductor Industry Association, which represents most global chipmakers, is confident that the market can bounce back from its 2023 downturn, driven by rising demand for high-priced processors designed for artificial intelligence. Taiwan Semiconductor Manufacturing Company, the world’s biggest contract chipmaker, is similarly bullish, forecasting a return to strong growth this year as the global market recovers.

Need to know: UK and European economy

The food industry warned of higher prices and shortages when new post-Brexit border measures come into effect on Wednesday. Complex paperwork and a shortage of vets to sign export health certificates on the continent could hit supply chains for several products.

The Bank of England makes its decision on interest rates on Thursday. Despite encouraging news on inflation, economists are expecting rates to stay on hold at 5.25 per cent.

German rightwing populists suffered an unexpected defeat in a widely watched regional election after a fortnight of nationwide protests. The Alternative for Germany (AfD) party had looked likely to secure its second-ever local government mandate amid growing support for anti-immigration policies. 

EU climate chief Wopke Hoekstra told the FT that climate action and business success were not incompatible as Brussels fends off a backlash against its ambitious environmental plans.

Need to know: global economy

The US Federal Reserve makes its interest rate decision on Wednesday. Recent strong economic data have boosted convictions that it can take its time before making its first cut, with rates likely to stay unchanged at a 23-year high of 5.25 to 5.5 per cent.

Burkina Faso, Mali and Niger, all ruled by military juntas, have quit the Economic Community of West African States, marking a significant deterioration of relations in the region. Ecowas had already suspended the three nations from the union, which promotes economic integration and freedom of movement.

Sergio Moro, the former Brazilian judge and anti-corruption crusader who sent current president Luiz Inácio Lula da Silva to jail in 2017, faces the loss of his Senate seat and a Supreme Court investigation.

Need to know: business

BP is under pressure from activist investors to ditch its clean energy plans, including the only hard target in the sector to cut oil and gas output. Bluebell, a London-based hedge fund that previously took on Danone and Glencore, said the “irrational strategy” was destroying shareholder value by moving away from hydrocarbons faster than society.

Ryanair offered to take up Boeing’s surplus 737 Max planes if US airlines pulled their orders following the recent fuselage blowout. As our Big Read explains, the incident has the potential to reshape the world aviation market to the benefit of Boeing’s rival Airbus.

Philips stopped sales of its sleep apnoea device in the US after reaching a deal with regulators to set aside €363mn to fix long-running problems with the breathing machines involving the disintegration of noise-dampening foam inside them.

KaDeWe, Germany’s most famous department store, filed for insolvency. The 117-year-old institution said it could not afford to pay rent on its store in Berlin, one of Europe’s biggest luxury retail outlets.

The creation of a new company to run England’s top women’s football leagues has sparked new hope that clubs can capitalise on the rising popularity of the game.

Elon Musk’s X blocked searches for Taylor Swift after sexually explicit images of the pop star created using artificial intelligence spread across the platform. The incident is the latest example of how social media groups are scrambling to tackle “deepfakes”.

The world of work

Consultancy EY has started monitoring UK employees’ office attendance, with swipe card entry data being circulated at senior levels of the firm. At least 50 per cent of some teams are failing to meet its policy of being in the office at least two days a week.

More than a quarter of UK employees are subject to non-compete clauses that make it harder to switch jobs, according to the competition regulator, strengthening the case for legislation restricting their use.

Data matters to business but must be presented in a way that engages employees, writes Michael Skapinker. Managers need to learn how to present facts honestly while empathising with people’s difficulties, he says.

What to do when staff are exasperated by red tape, worn down by petty rules and procedures, and held back by nitpicking managers and indecisive leaders? Stanford professors Huggy Rao and Bob Sutton share tips on removing bad “friction” in companies.

Some good news

Some good news ahead of World Cancer Day next week. The introduction of a vaccine for young women against human papillomavirus in Scotland appears to have been successful in preventing cases of cervical cancer, with women from more deprived areas benefiting the most.