Crisis hits microchip market: What are reasons?

January 31, 2023  20:06

The global microchip market has developed a surplus that has led to a crisis, Bloomberg reports, explaining that the surplus was caused by a decline in demand for these products in the aftermath of the coronavirus epidemic.

"Chip equipment companies' sales are plunging by around 30% to 50%. This is not a normal situation," said Greg Roh, head of technology research at HMC Investment & Securities.

The source notes that the situation in the 160-billion-dollar market also destabilizes the position of suppliers and harms the economies of Asian countries that depend on exports of technology. Because of this, the remaining companies in the market began to cut costs, form alliances or consider mergers to cope with the difficulties.

U.S. chipmaker Micron, for example, announced late last month that in addition to cutting production, it would also cut budgets for new plants and equipment. Sanjay Mehrotra, the company's chief executive, said the industry's recovery depends on how quickly industry players take such steps. "We have to get through this cycle,” he said. “I believe the trend of cross-cycle growth and profitability is still in place," he said.

South Korea's Hynix also cut planned investment and production. The microchip company's overshoot is partly the result of its acquisition of Intel Corp.'s embedded memory business, a deal that was struck before the downturn in that sector.

Causes of the crisis

According to Economictimes, there are several reasons for the crisis: low demand after high demand during the coronavirus period, the war in Ukraine, historically high inflation worldwide and supply chain failures. In addition, prices for products that use these chips have fallen in price, and existing ones have been sitting in the warehouses of these companies for a long time.

"The chip industry thought that suppliers were going to have better control. This downturn has proved everybody was wrong,” Avril Wu, senior vice president of research at TrendForce, told the Web site.

The Web site notes that Samsung Electronics Co. and its competitors are already losing money on every chip they make. Total operating losses for the company and its competitors are projected to reach a record $5 billion this year. According to the site, these companies already have 3-4 months' worth of stock in their warehouses.

Incidentally, Samsung's quarterly profit fell, reaching its lowest level in eight years. The tech giant's operating profit in the fourth quarter was $3.5 billion, down 69 percent from last year. Revenue for the period was down 8%, slightly less than 57.3 billion dollars.

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