In a surprising turn of events, global chipmakers like Intel and Samsung are facing an unexpected end to supply surplus for semiconductors. While the demand for chips from the AI industry remains steady, customers outside this sector seem to be showing tepid interest. The year 2023 has witnessed a shrink in the chip market for smartphones, PCs, and data centers, primarily due to cautious spending from corporate customers and consumers. This trend has been exacerbated by an economy grappling with inflation and rising interest rates, leading to an unprecedented oversupply of commodity chips.
Oversupply Woes and Record Losses
The current state of oversupply has taken its toll on two of the world’s largest memory chipmakers, Samsung and SK Hynix, resulting in a staggering combined operating loss of 15.2 trillion won ($12 billion) in the first half of the year. The situation has prompted industry leaders to take action in an attempt to address the issue.
Hopeful Signs Amid the Crisis
Despite the challenges, there are signs of relief as the glut in the chip market is beginning to ease. Production cuts and a decline in PC shipments have played a role in this development. According to data from tech analysts Canalys, PC shipments recorded an 11% drop over the June quarter, showing improvement compared to the previous two quarters. The smartphone market also seems to be on the path to recovery, with cellphone shipments experiencing a lesser decline of 8% in the June quarter, compared to 14% in the first quarter, as reported by research firm Counterpoint.
A Gradual Recovery
Woohyun Kim, the Chief Financial Officer at SK Hynix, expressed optimism about the situation, stating that demand is gradually recovering. However, he pointed out that the recent boost in PC shipments was driven mainly by promotions and low-end models, which had limited impact on chip demand recovery.
The Impact of AI on Chip Demand
While there has been a notable increase in chip demand to support generative AI platforms like ChatGPT, it is essential to note that the AI sector still constitutes only a small portion of overall demand. As AI continues to develop, it has affected corporate spending on servers, causing some challenges in the chip market.
Intel’s CEO Addresses Inventory Glut
Pat Gelsinger, the CEO of Intel, provided insights into the company’s current situation, acknowledging an inventory glut in server central processing units (CPUs). He predicts that this oversupply issue will persist until the second half of the year. Additionally, data center chip sales are expected to decline modestly in the third quarter before recovering in the fourth quarter.
China’s Role in the Market
As the world’s biggest chip buyer, China’s actions hold significant weight in the industry. Both Samsung and SK Hynix revealed that China’s reopening did not provide the expected boost to the smartphone market. Consequently, they have extended their production cuts of NAND memory chips, which are commonly used in smartphones to store digital data.
A Bright Future for AI Servers
Lam CEO Tim Archer highlighted the potential of advanced AI servers, emphasizing their higher leading-edge logic, memory, and storage content compared to traditional servers. He believes that every incremental 1% penetration of AI servers and data centers could drive $1 billion to $1.5 billion of additional investment in chip equipment.
High-End Chip Production for AI Support
In response to the increasing demand for AI-related chips, chipmakers are ramping up the production of high-end chips used to support AI applications. This strategic move aims to ensure that the market can keep up with the growing requirements of AI technologies.
As the chip industry faces this unique challenge of oversupply, companies are striving to strike a balance between different market demands. The path to recovery may be gradual, but with proactive measures and technological advancements, chipmakers are hopeful that they can navigate this period of turbulence and emerge stronger than before.
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