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180-degree turn: companies can drown in accumulated chips

In a few weeks, everything turned upside down, surprising even Wall Street, and more and more companies are suffering because of the chips accumulated in their warehouses.

We have been hearing for years that the electronics sector, the automotive industry, and practically everything is suffering from a global chip shortage – huge investments, capacity expansions and state subsidies were announced, but the business reports revealed: there is not a chip shortage, but a chip crisis, because there are far more chips than long ago, demand skyrocketed.

Although every important country wants to be a chip power in the long term, with lots of factories, the situation took a 180-degree turn in a flash.

You don’t need so many chips anymore

According to experts, high inflation, Chinese lockdowns and the situation in Ukraine are the reasons why consumers are spending less and less, especially on PCs and smartphones.

In some sectors, companies are starting to drown in chips, much to the surprise of Wall Street. Micron has already indicated that it will reduce production, but not prices, and it will also withhold manufactured chips.

They pile it up like toilet paper

TechInsights analysts say Micron’s example is just the beginning. The prices of chip stocks also fell, but the situation is really aggravated by the fact that the companies have all accumulated the chips.

Analysts compare the situation to the toilet paper craze: manufacturers started stockpiling chips during the pandemic, the just-in-time production approach is no longer ordered close to production, maintaining a minimum inventory and optimizing costs, but stockpiling everything on the just-in-case principle.

According to Dan Hutcheson, who has worked in the chip sector for more than 40 years, everyone thinks they have to stockpile, but one day they will ask themselves: why do I have such a large stock? As with toilet paper, says the specialist.

It varies who suffers how much

According to experts, not all companies are equally affected by the big turnaround. Consumer electronics manufacturers will suffer the 180-degree turn, especially manufacturers of cheaper mobile phones, says the Baird analyst team. NVIDIA will also suffer from falling prices and crypto market crashes.

Apple’s suppliers are the least affected by the situation, as the demand for expensive Apple devices has remained consistently high. Companies serving the automotive industry and data centers can also be happy, with unbroken demand.

Intel is also affected by the situation, but the company has so far indicated that it is raising prices due to rising costs, and that its processors and other products may cost 20 percent more starting this autumn.

In many factories, the production lines are being transformed in order to be able to serve more advantageous sectors.

According to Jefferies, company managers and analysts do not say how much excess chips are in warehouses, but first-quarter stocks exceeded all records for major manufacturers. The previous record was set more than 20 years ago, before dotkomlufi. They also say companies can cancel orders and use parts they have in stock.

For the time being, companies serving the automotive industry are safe, but according to Bernstein analysts, car manufacturers also ordered far more chips than they need and have not stopped the practice since then – so trouble will strike there as well.

Update: in the meantime, SK Hynix also revealed that they are considering reducing spending by a quarter next year.

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