Global Chipmakers Celebrate End of Supply Glut, But Non-AI Demand Still Gloomy

Date:

Global Chipmakers Find Glimmer of Hope as Supply Glut Eases, But Non-AI Demand Remains Uncertain

Chipmakers around the world are breathing a sigh of relief as they see signs of an end to the semiconductor supply glut, although concerns linger over demand from customers outside the artificial intelligence (AI) industry. The major markets for chips, including smartphones, PCs, and data centers, have all experienced declines this year as a result of reduced spending by both corporate customers and consumers amidst a weak global economy, high inflation, and rising interest rates.

The oversupply of commodity chips had led to a staggering loss of 15.2 trillion won ($18 billion) in operating profit for Samsung and SK Hynix, the world’s two largest memory chipmakers, in the first half of the year. However, recent production cuts and a smaller decline in PC shipments have contributed to a gradual easing of the glut. Data from tech analysts Canalys showed that PC shipments fell by 11 percent in the June quarter, compared to a steep 30 percent decline in each of the previous two quarters. In the smartphone market, there has also been improvement, with cellphone shipments dropping by 8 percent in the June quarter, compared to 14 percent in the first quarter, according to research firm Counterpoint.

Demand is recovering very gradually, said Woohyun Kim, CFO at SK Hynix, during an earnings call. However, he noted that the recovery is mainly driven by promotions and low-end models, which means the impact on chip demand is limited. As a result, shipment forecasts for PCs and smartphones for this year have been downgraded from earlier predictions.

See also  Wipro drives growth in BFSI sector with AI and Cloud investments, Capco acquisition

While the demand for chips to support generative AI has seen a rapid increase since OpenAI’s ChatGPT was launched last year, this sector represents only a small fraction of the overall chip demand. As companies prioritize investment in AI, corporate spending on servers has been curtailed, affecting chip demand for other purposes. Intel CEO Pat Gelsinger recently stated that an inventory glut in server CPUs will persist until the second half of the year, with data center chip sales expected to decline in the third quarter before recovering in the fourth quarter.

The slow recovery in China, the largest chip buyer in the world, is also dampening the overall outlook. China’s reopening has failed to live up to expectations of reviving the smartphone market, leading Samsung and SK Hynix to extend production cuts of NAND memory chips used in smartphones for data storage. Analog chipmaker Texas Instruments, which has significant exposure to China, has forecasted lower-than-expected revenue and profit for the third quarter due to sluggish demand in end markets and order cancellations from clients.

However, the AI boom has brought early success to manufacturers of chip equipment such as KLA and Lam Research. Both companies have reported higher-than-expected quarterly revenue and their shares have seen an uptick. CEO Tim Archer of Lam Research noted that advanced AI servers require more leading-edge logic, memory, and storage content compared to traditional servers, and each incremental penetration of AI servers and data centers is expected to drive billions of dollars in additional chip equipment investments.

See also  Assembly Appoints Digital Marketing Expert as Chief Activation Officer for Omnichannel Media Innovation

Chipmakers are also increasing production of high-end chips used to support AI-related applications. SK Hynix reported that demand for AI server memory more than doubled in the second quarter compared to the previous quarter. The company’s DRAM chips, which hold information while the system is in use, sold for higher prices in the second quarter on average. SK Hynix leads the market in high bandwidth memory (HBM) DRAM used in generative AI, with a market share of 50 percent in 2022, followed by Samsung with 40 percent and Micron with 10 percent, according to TrendForce.

Despite signs of improvement, chipmakers remain cautious as uncertainties persist, particularly in non-AI sectors. The recovery in demand from customers outside the AI industry is still uncertain, given the sluggish global economy and geopolitical tensions. As chipmakers navigate these challenges, they continue to monitor market conditions and adjust their strategies accordingly.

In summary, while chipmakers are celebrating a reduction in the semiconductor supply glut, concerns over non-AI demand and economic uncertainties remain. The recovery in major chip markets is gradual, and chipmakers are adapting to changing conditions to ensure their businesses remain resilient. With the AI industry showing promising growth, manufacturers of chip equipment and high-end AI-supporting chips are reaping the benefits. However, the broader chip industry is cautiously moving forward as it awaits more concrete signals of recovery in demand outside the AI sector.

Frequently Asked Questions (FAQs) Related to the Above News

What is the current state of the semiconductor supply glut?

The semiconductor supply glut is gradually easing as chipmakers implement production cuts and see a smaller decline in PC and smartphone shipments. However, concerns still linger regarding demand from customers outside the AI industry.

How have major chip markets been affected by the supply glut?

Major chip markets, including smartphones, PCs, and data centers, have experienced declines this year due to reduced spending by corporate customers and consumers amidst a weak global economy, high inflation, and rising interest rates.

How much operating profit did Samsung and SK Hynix lose in the first half of the year due to the oversupply of chips?

Samsung and SK Hynix, the world's two largest memory chipmakers, lost 15.2 trillion won ($18 billion) in operating profit in the first half of the year.

Is demand for chips recovering?

Demand for chips is recovering gradually, but it is mainly driven by promotions and low-end models. As a result, shipment forecasts for PCs and smartphones for this year have been downgraded.

How has AI impacted chip demand?

While the demand for chips to support generative AI has seen rapid growth, this sector represents only a small fraction of the overall chip demand. Corporate spending on servers for AI has affected chip demand for other purposes.

How is the recovery in China affecting chipmakers?

The slow recovery in China, the largest chip buyer in the world, is dampening the overall outlook. The reopening of the Chinese smartphone market has not lived up to expectations, leading to extended production cuts by chipmakers.

Which companies have seen success in chip equipment manufacturing?

Companies like KLA and Lam Research, which manufacture chip equipment, have reported higher-than-expected revenue. The boom in AI has increased demand for their advanced AI servers and data centers.

Are chipmakers increasing production of high-end chips for AI applications?

Yes, chipmakers are increasing production of high-end chips used to support AI-related applications. Demand for AI server memory has more than doubled, and leading companies are investing in chip equipment for generative AI.

What challenges do chipmakers face despite signs of improvement?

Chipmakers remain cautious due to uncertainties in non-AI sectors and factors such as the sluggish global economy and geopolitical tensions. They continue to monitor market conditions and adjust their strategies accordingly.

How are chipmakers adapting to changing conditions?

Chipmakers are adjusting production, monitoring market demands, and focusing on high-end AI-supporting chips to navigate the current challenges. They are also closely monitoring economic uncertainties to ensure their businesses remain resilient.

What is the outlook for the recovery of demand outside the AI sector?

The recovery in demand from customers outside the AI industry remains uncertain due to economic factors and geopolitical tensions. Chipmakers are cautiously moving forward and waiting for more concrete signals of recovery in these sectors.

Please note that the FAQs provided on this page are based on the news article published. While we strive to provide accurate and up-to-date information, it is always recommended to consult relevant authorities or professionals before making any decisions or taking action based on the FAQs or the news article.

Share post:

Subscribe

Popular

More like this
Related

Obama’s Techno-Optimism Shifts as Democrats Navigate Changing Tech Landscape

Explore the evolution of tech policy from Obama's optimism to Harris's vision at the Democratic National Convention. What's next for Democrats in tech?

Tech Evolution: From Obama’s Optimism to Harris’s Vision

Explore the evolution of tech policy from Obama's optimism to Harris's vision at the Democratic National Convention. What's next for Democrats in tech?

Tonix Pharmaceuticals TNXP Shares Fall 14.61% After Q2 Earnings Report

Tonix Pharmaceuticals TNXP shares decline 14.61% post-Q2 earnings report. Evaluate investment strategy based on company updates and market dynamics.

The Future of Good Jobs: Why College Degrees are Essential through 2031

Discover the future of good jobs through 2031 and why college degrees are essential. Learn more about job projections and AI's influence.