The tech industry now has an overstock of semiconductors. The worldwide shortfall of chips that occurred during the previous two years of high demand has now completely reversed.
Chip stocks are growing, reflecting the broader economy as stores cannot move inventory, and manufacturers of once high-demand products confront an oversupply.
Chips make items like washing machines and computers more efficient and affordable than a year ago. The change, according to the Wall Street Journal (WSJ), has sparked a wave of job cutbacks and reduced capital investment as chipmakers struggle to regain profitability.
Executives' Optimism
Micron Technology's chip inventory levels are "far beyond their goal threshold," said CEO Sanjay Mehrotra as the firm missed WSJ's profit estimates. It also provided a subdued outlook and announced a 10% reduction in its workforce.
According to Susquehanna International Group, chip order and delivery lead times have dropped in recent months. Chip sector inventory levels are 40 days above the norm, based on a report.
HP chief exec Enrique Lores thinks consumer PC supply will stay high for the next two quarters, but he sees indications of improvement.
He recently stated that the company has a significant inventory, particularly on the consumer side, which is driving extremely aggressive pricing.
WSJ reports that in November, Dell said PC distributors were promoting in a price-competitive market, but it was not discounting.
Intel CEO Pat Gelsinger remarked in October when the firm published a subdued profit projection and announced mass layoffs, "it's just hard to see any points of good news on the horizon."
Meanwhile, Advanced Micro Devices, a rival that develops PC processors, warned of high inventories.
AMD exec Lisa Su stated the firm is supplying fewer processors than needed. She also noted that her PC-building clients are making similar adjustments.
Chip executives anticipate the situation to improve next year, but it is unclear whether the sector will recover.
Nvidia, America's biggest semiconductor maker by value, claimed excess inventories might thwart a new generation of superfast video gaming graphics processors. CFO Colette Kress indicated in November that inventory levels should reach normal by January.
While some tech firms and execs are optimistic, like Nvidia and Kress, others see a delayed comeback, perhaps later in the year.
Micron expects the scenario to last through September. Chief Mehrotra told investors that most clients would have decreased their holdings by 2023.
Harmful Factors
PC shipments are not the only thing affecting chip companies' earnings. Smartphone sales have slowed.
Micron lowered its phone shipment forecast from three months ago. Qualcomm, which provides semiconductors for Samsung and Apple iPhones, has reduced sales expectations this year.
Opportunities
Despite the near-term oversupply, chip executives expect long-term demand to expand. This would require them to construct additional plants.
Chip sales are expected to double by 2030, hitting $1 trillion worldwide.
Some chipmakers see an opportunity in the stockpile. CPU companies must provide their product before a new, more capable version is launched, yet some create chips that will not change for years.
