Global semiconductor manufacturers face heightened revenue and cash flow volatility, Fitch Ratings said in a statement on Wednesday.
Some of the major reasons for volatility are supply chain issues, elevated protectionism measures from some countries, geopolitical instability, and monetary and fiscal policy interventions by governments, the rating agency said in a statement.
On the demand side, weakening consumer electronics, computer and smartphone sales are weighing on chipmakers, causing them to reduce their capital expenditures, it added.
The US government's $52 billion CHIPS and Science Act passed into law on Tuesday should accelerate semiconductor capacity production in the country, Fitch said.
"The Act follows similar actions taken by the EU designed to wean the semiconductor supply chain from an overreliance on southeast Asia and relieve market constraints," it added.
Fitch noted that government investment and support in some Asian countries have reshaped the semiconductor industry in the past 20 years, during which the US' share in the global chip manufacturing sector declined to the low teens from the mid-30% range.
In the near-term, chip manufacturers also risk overinvesting in production capacity and a global economic downturn, the agency said.
"Slowing global economic growth and aggressive capacity additions could reverse the favorable semiconductor supply/demand environment heading into 2023, resulting in excess capacity that could persist into 2024-2025," the statement said.
The global economy has been struggling with a semiconductor shortage since the beginning of the COVID-19 pandemic as chip factories were shut down. The reopening caused a surge in global demand amid limited supply.
The chip crisis affects 169 industries in one way or another, from electronics to automotive and healthcare equipment, according to Goldman Sachs, a US multinational investment bank and financial services company.