The overproduction of microchips has become a global problem. This glut marks a 180 degree turn from the shortage observed over the past two years, a period during which demand was exceptional. With consumers having less appetite for electronics due to rising interest rates, a declining stock market and fears of recession, chip inventories are on the rise. This mirrors what is happening in the broader economy, where retailers are struggling to clear inventory and producers of various products that were in high demand at the start of the pandemic are now finding themselves oversupplied.
For consumers, this is good news, as they can get hold of products ranging from washing machines to laptops faster and sometimes cheaper than a year ago. For chipmakers, this has led to a wave of layoffs and reduced capital spending as companies try to restore profitability levels that have been chipped away in recent months.
Chip inventory levels are "well above our target level," according to Sanjay Mehrotra, CEO of Micron Technology, which announced the layoff of about 10% of its employees. According to an analysis by Susquehanna International Group, the delays between chip orders and deliveries that lengthened at the start of the pandemic have decreased in recent months. Inventory levels, usually measured in days, are the highest in more than a decade, about 40 days above the median for the chip industry and its blockchain, according to analysis by UBS. supply.
Intel CEO Pat Gelsinger said in October that it was "difficult to see any bright spots on the horizon" as the company released its lackluster latest report and announced layoffs. AMD, its competitor, also warned against high inventory levels. AMD CEO Lisa Su said the company is trying to fix the situation by shipping fewer chips than there is demand. According to her, her PC maker customers are adjusting in the same way.
"Even though they were draining their inventory, they weren't filling it to the same levels," she said. “I think the market will continue to be volatile. »
Nvidia, the largest chip company in the United States by value, said excess inventory could dampen the advantage of its recent next generation of graphics chips, the 4000 series. According to Nvidia, its customers are trying to burn through existing inventory before replacing it and buying the latest processors.
In short
Overproduction of microchips has become a global problem due to declining consumer demand for electronic products due to rising interest rates, falling stock market and fears of recession. This led to higher chip inventories and lower profitability for chipmakers, who were forced to lay off staff and cut capital expenditures. Chip industry executives expect the situation to gradually improve next year, but there is still uncertainty over when this industry known for its sudden boom-and-bust cycles will experience its next reversal.