Semiconductor Chip Oversupply Eases as Demand Gradually Recovers

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Semiconductor Chip Oversupply Eases as Demand Gradually Recovers

Global chipmakers, including Intel and Samsung, are experiencing relief from the oversupply of semiconductors as demand slowly picks up. While expectations for demand from customers outside of the artificial intelligence (AI) industry remain low, there are positive signs in the market.

The chip market faced challenges in 2023 due to reduced spending from corporate customers and consumers, dampened by inflation and rising interest rates. This led to an unprecedented surplus of commodity chips, causing major players like Samsung and SK Hynix to report a combined operating loss of 15.2 trillion won ($12 billion) in the first half of the year.

Fortunately, the situation is beginning to improve as chip production is being scaled back and there is a decline in PC shipments. Data from tech analysts Canalys shows that PC shipments dropped by 11% in the June quarter, compared to a 30% decline in each of the previous two quarters.

Similarly, the smartphone market is also showing signs of recovery. Research firm Counterpoint reported an 8% decrease in cellphone shipments in the June quarter, which is an improvement compared to the 14% decline in the first quarter.

However, the recovery in chip demand remains gradual. Woohyun Kim, the CFO of SK Hynix, mentioned during an earnings call that the recent increase in PC shipments was mainly driven by promotions and low-end models, which only had a limited impact on chip demand recovery.

Furthermore, while there is an uptick in chip demand to support generative AI platforms like ChatGPT, the overall demand for chips in this sector is still relatively small. Also, corporate spending on servers has been affected, as AI-related chip demands restricts their budget allocations.

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Intel CEO Pat Gelsinger stated that the inventory glut in server central processing units (CPUs) will persist until the second half of the year, with data center chip sales expected to decline modestly in the third quarter before recovering in the fourth quarter.

In China, the largest chip buyer globally, there has been a reduction in overall demand. Both Samsung and SK Hynix reported that China’s reopening did not stimulate the smartphone market, leading to production cuts of NAND memory chips, which are commonly used in smartphones for storing digital data.

The CEO of Lam, Tim Archer, highlighted the significance of advanced AI servers, mentioning that they require higher leading-edge logic, memory, and storage content compared to traditional servers. He added that even a 1% penetration of AI servers and data centers could lead to $1 billion to $1.5 billion of additional chip equipment investment.

Overall, the semiconductor chip oversupply is gradually easing as demand shows signs of recovery. While challenges remain, especially in the smartphone and PC market, chipmakers are taking steps to adjust production and meet the changing demands of the industry.

In conclusion, the semiconductor industry is navigating through the challenges of oversupply and gradually finding equilibrium as demand improves. The focus now is on adapting to changing market dynamics, such as the rise of AI-related chip demands, and making strategic investments to meet future requirements.

Frequently Asked Questions (FAQs) Related to the Above News

What has caused the oversupply of semiconductor chips in the market?

The oversupply of semiconductor chips in the market was primarily caused by reduced spending from corporate customers and consumers, as well as inflation and rising interest rates.

How have major chipmakers like Samsung and SK Hynix been affected by the oversupply?

Major chipmakers like Samsung and SK Hynix reported a combined operating loss of 15.2 trillion won ($12 billion) in the first half of the year due to the oversupply of semiconductors.

Is there any improvement in the chip market?

Yes, there are positive signs in the chip market as demand slowly picks up. Chip production is being scaled back, and there is a decline in PC shipments and smartphone market sales.

How have PC shipments been impacted by the oversupply of chips?

PC shipments dropped by 11% in the June quarter, which is an improvement compared to the 30% decline in each of the previous two quarters. This decline indicates lower demand and helps alleviate the oversupply issue.

What is the situation in the smartphone market?

The smartphone market is also showing signs of recovery. Cellphone shipments decreased by 8% in the June quarter, an improvement compared to the 14% decline in the first quarter.

Is chip demand recovering in the artificial intelligence (AI) industry?

While there is an increase in chip demand to support generative AI platforms like ChatGPT, the overall demand for chips in this sector remains relatively small. Corporate spending on servers has been affected due to the restricted budget allocation for AI-related chip demands.

When is the inventory glut in server central processing units (CPUs) expected to persist?

Intel CEO Pat Gelsinger stated that the inventory glut in server CPUs will persist until the second half of the year, with a modest decline in data center chip sales in the third quarter and recovery in the fourth quarter.

How has China's reopening affected chip demand?

China's reopening did not stimulate the smartphone market as expected, leading to production cuts of NAND memory chips, which are commonly used in smartphones for storing digital data.

Are AI servers and data centers significant for chip demand?

Yes, the CEO of Lam, Tim Archer, highlighted the significance of advanced AI servers. He mentioned that they require higher leading-edge logic, memory, and storage content compared to traditional servers. Even a 1% penetration of AI servers and data centers could lead to $1 billion to $1.5 billion of additional chip equipment investment.

How is the semiconductor industry adapting to the oversupply and changing market dynamics?

Chipmakers are taking steps to adjust production and meet the changing demands of the industry. They are making strategic investments to align with the rise of AI-related chip demands and other evolving market dynamics.

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.

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