Semiconductors

The chip shortage has suddenly morphed into a glut

Chipmakers prepare for a downturn as demand begins to fade.
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The semiconductor market continues to be, in a word, thorny. The industry is now reportedly bracing for a downturn due to an oversupply of chips—aka the exact opposite of the challenge it’s dealt with for the last few years.

  • Christopher Danely, an analyst at Citigroup, told Bloomberg he expects the coming semiconductor downturn to be “the worst in at least a decade, and possibly two.”

That would be a huge reversal in fortune for chipmakers: Global semiconductor revenue and units shipped both surged to record-highs last year. Meanwhile, Gartner recently slashed its growth projection for this year from 13% to 7%, the Financial Times reported, and now expects that semiconductor sales will shrink 2.5% in 2023.

The reason? As Bloomberg noted, it’s notoriously difficult for the semiconductor industry to reach the hallowed ground of supply-demand equilibrium, in large part because it takes so long to build new capacity.

The industry is seeing that play out now. Just as global chipmakers have begun ramping up production to deal with the almost two-year-strong shortage situation, consumers are beginning to pare back big purchases, causing manufacturers to cut demand for chips.

  • In February, there was enough global semiconductor inventory for ~1.2 months of production, per VLSI data cited by the FT.
  • By July, there was 1.7 months’ worth—a 42% increase.

Big picture: As another reminder of how complex the situation is, some customers (e.g. automakers) are still struggling to get the specific chips they need, per Bloomberg, even despite the glut.

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