The supply chain crisis triggered by the global pandemic has prevented personal computer (PC) and smartphone makers from getting the computer chips they need.
That all changed abruptly in 3 weeks from late May to June; as high inflation, the latest coronavirus lockdown in China, and the war in Ukraine dampened consumer spending, especially on PCs and smartphones.
The shortage of chips turned into a glut in some areas, surprising Wall Street. As of the end of June, memory chip company Micron Technology (MU-US) indicates that production will be reduced. Commerce Chief Sumit Sadana acknowledged that the market reversal caught Micron by surprise.
As the U.S. chip stock earnings season kicks off later this month, TechInsights chip economist Dan Hutcheson warns of more bad news following Micron’s grim forecast, “Micron is just being honest with the first. gun.”
Fears of an industry downturn hit chip stocks,Philadelphia SemiconductorThe index has fallen 35% so far in 2022, far outpacing the S&P 500’s 19% drop.
But the chip hoarding made things worse.
Just as nervous shoppers were snapping up toilet paper at supermarkets before the coronavirus lockdown, manufacturers have stockpiled computer chips during the pandemic. Until then, “just-in-time” manufacturing was the norm for fiscally conservative companies that ordered parts just ahead of production to avoid excess inventory, reduce warehouse capacity and cut up-front spending as much as possible.
During the pandemic, that practice turned into what some have dubbed “just in case” chip hoarding.
“Hoarding is a signal that the industry thinks is critical until they realize, ‘Why do I have so much inventory?'” said Hutchison, who has been forecasting chip supply and demand for more than 40 years. It’s a bit like panic buying toilet paper.” Experts say the chip market reversal has hit each business segment unevenly.
Big chip suppliers to consumer electronics makers, especially low-end smartphones, will be hit by the economic downturn, said Tristan Gerra, senior analyst at Baird Semiconductor. Chip design giant Nvidia Corp (NVDA-US) graphics chips are often used in games and miningcryptocurrencyGuerra said, as prices continue to fall, the recentcryptocurrencyThe market crash has exacerbated the situation and there might be “another drop”.
Wedbush analyst Matt Bryson said Apple was least affected by the oversupply.AAPL-US) suppliers, such as the world’s largest chip maker TSMC (2330-US) (TSM-US), demand for higher-end Apple devices remains high. Chip makers that supply cars and data centers will also thrive, Guerra said, noting that demand continues unabated.
However, as for the communication chips used in smartphones, he said, “the phones are softening.”
He said many chip fabs are “retooling” their production lines to make more automotive power management chips and fewer communication chips, which might eventually help alleviate some of the car chip shortages.
While industry executives and analysts can’t say how many excess wafers are in warehouses around the world, inventories at major electronics manufacturing services companies in the first quarter rose, Jefferies analyst Mark Lipacis said in a July 1 report. hit an all-time high. The previous season 1 record was more than 20 years ago, just before the dot-com bust.
He warned that manufacturers may decide to consume wafers in warehouses rather than buy new ones and cancel orders.
Some analysts say auto chipmakers are safe for now. But it probably won’t last long.
Automakers are ordering far more wafers than they need, and that trend continues, Bernstein analyst Stacy Rasgon said in a September report.
The problem arose when automakers stopped buying wafers to deplete inventories.
