Chip inventories have overgrown as consumer demand continues to decline
Companies are hoping this will subside by the end of 2023By Matt Frusher 11 comments
Why it matters: During the peak of the COVID-19 pandemic, numerous tech companies saw record profits and purchases due to the boom of home-based work and schooling. However, most major rises are followed by a sharp fall, and those same companies are now dealing with an extreme oversupply of chips and other products.
In 2020, there was a massive spike in demand for electronics that we had never seen before. Due to the lockdowns, shutdowns, and other restrictions brought on by the pandemic, workers and students were told to continue their respective work from home. Of course, not everyone had the necessary products to make that happen, thus explaining the major boom in demand.
However, as time went on and restrictions were slowly lifted, the need for such products began to dwindle. Unfortunately for many companies, the record profits and sales eventually turned into high amounts of overstock and items collecting dust on store shelves. Multiple CEOs from different chip manufacturers and OEMs have discussed their thoughts on the current situation they are facing, as seen in a report by the Wall Street Journal.
Micron's CEO, Sanjay Mehrotra, claims that the company's chip levels are "well above our target level" and that Micron is so affected by the sharp decline in demand that it recently cut approximately 10% of its overall workforce. Enrique Lores, HP's CEO, doesn't expect these issues to clear up for the industry for at least the next two quarters, but he does believe there are signs that they may begin to subside soon.
Both Intel and AMD's CEOs are also revealing issues that their respective companies are dealing with. In October, Intel's Pat Gelsinger noted, "It's just hard to see any points of good news on the horizon." Intel reported a 15% decline in sales and a 59% drop in overall profits for Q3 2022 compared to Q3 2021.
AMD has also suffered from a lack of demand in recent months, as it missed expectations for the new AM5 platform and subsequent processors. AMD has begun to ship fewer chips than there is demand for in order to clear out its excess stock. Due to this, however, Su states that OEMs who use AMD processors in their pre-built desktops or laptops have unfortunately been unable to replenish their own stock at expected levels.
PC-related manufacturers are not the only ones noticing a massive loss in demand, as the smartphone industry has also seen a drop in sales over recent months. Qualcomm, the producer of Snapdragon processors found in many Samsung phones, recently slashed expectations due to the lower demand for high-end smartphones.
For the time being, companies will have to find ways to either deal with or entirely work around the sudden decline in demand. Despite all of these setbacks, many executives still expect that chip sales will double by 2030 and surpass over $1 trillion, especially as the U.S. begins to incentivize localizing chip production.
Image credit: blue circuit board by Umberto, SODIMM RAM stick by Possessed Photography