Economic Uncertainties and Demand Lag Impacting Chip Industry

Applied Tech Review | Monday, September 12, 2022

The pandemic drastically impacted the chip industry by causing revenue depletion and reducing the demand for chips. However, new advancements are paving the way to retain the loss by introducing recent trends.

FREMONT, CA: Analysts have observed that the chip industry's inventory correction will witness a drop in more than a decade, resulting in a bust in sales. It is consistently predicted that the decline will be immense, possibly reverting to the 2001 landscape. This scenario will have a significant impact on every chip company and category.

These predictions are based on the prevailing concerns regarding chip inventory build-ups during the pandemic. There are concerns from chipmakers and their OEM buyers about the signs of a possible global recession and declining demand for electronics. It includes desktop computers but also data centre servers and more. 2019 observed the most recent inventory correction in the worldwide chip industry. Months later, sales of chips and chip stock prices increased through 2021. The demand for computers increased during the pandemic, despite the absence of a few chip supplies. However, some automakers can still not access all the chips they require.

Some companies are witnessing a weakening demand due to adjustments in broadening outside customers to other parts of the market, including data centres, industrial, and automotive. As a result, there will be sequential declines in revenue and margins in a regulatory filing as customers reduce their stockpiles of unused chips. This indicates that chipmakers are facing growing inventory and shrinking demand.

International Data Corporation(IDC) predicts that shipments of widespread electronic devices will decline in the first half of 2023, indicating a demand reduction. There is a fair probability the PC market will go down by double digits this year and a growing likelihood it could also decrease next year, though by a lower amount. IDC earlier projected that global semiconductor revenue would rise by 661 billion USD in 2022, nearly 14 per cent of the 2021 tally. They also highlighted a five-year growth rate of 4.93 per cent from 2021 to 2026. IDC said that semiconductor content growth would remain undefeatable over the next few years.

Some chipmakers urged calm as it can be challenging to predict macroeconomic changes in the chip business. They opined that there was no need to be alarmed about the semiconductor industry. However, they must understand the cyclic nature of the semiconductor business. This will help them to be less worried when shortages and downturns happen. Semiconductor professionals have observed these cycles for a long time as a part of semiconductors.

It is impossible to view the entire chip industry across all segments of memory and logic. Although demand for PCs has reduced, there will be a rise in ARM-based chips that hyperscalers manufacture.

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