A lingering overabundance of inventory plaguing the computer processor and memory chip sector is showing no signs of relief as the consumer economy contracts and the boom caused by Coronavirus Disease 2019 (COVID-19) lockdown and work from home mandates has all but dissolved.
Perhaps the most simultaneously amusing and apt notification that the market had shifted from a state of high demand and low supply was a July of 2022 article by CNBC, which explained in a way that everyone could understand, “Like nervous shoppers raiding supermarket aisles for toilet paper ahead of a Covid-19 lockdown, manufacturers stockpiled computer chips during the pandemic.”
By June, data from South Korea had already demonstrated that inventory was not only almost 55 percent higher year-over-year, but had been trending upwards as far back as October.
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By September, what had once been just the charming murmurs of what may have been a supply chain issue had accelerated into something of a crisis for the industry at large, as Bloomberg reported that memory chip giant Micron had missed its Q3 2022 sales estimates by $2 billion.
The article stated that Japan-based Kioxia had also slashed its production as a result of poor sales, anticipating producing 30 percent less chips through December.
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October of 2022 was no better for the industry, as SK Hynix posted Q3 results that showed a year over year 60 percent blowout of the company’s earnings per share metric, resulting in an announcement of a capital expenditures cut.
Industry monolith Taiwan Semiconductor Manufacturing Corporation (TSMC) “also announced capacity cuts recently due to expectations of softer demand,” according to a Marketwatch article at the time.
By November, the backlog had continued as websites such as Marketplace, like numerous other outlets over the months, lamented that a spike in demand caused by COVID work from home and school closure mandates had since dried up.
One mother the outlet spoke with said her family was forced to purchase four laptops so the kids could attend school, “So, like, I’m not buying any notebooks for a while,” she stated.
A more in-depth article by Forbes at the time elaborated, “Back in April 2021 Gartner IT reported that worldwide PC ships grew the most on record. Chromebooks grew by triple digits then, and all of the top six PC vendors grew in the double digits.”
“But the replacement cycle on PCs is three years or longer, so it was never realistic to think demand would keep growing up to the sky,” Forbes added.
All was quiet on the radar until late January when Q4 and FY 2022 earnings started to come in, one of the more notable reports was industry supergiant Samsung, who posted its worst chip profit on record since 2009, Reuters reported.
Despite the trying situation, Samsung appears to see an opportunity through a crisis, stating that while it would curb its short-term production line by taking advantage of the lull to conduct maintenance and upgrade its workflow, Samsung would also increase spending on R&D.
Reuters alluded that the move may have been made as Micron and SK Hynix continued to slash investment.
But the situation has rapidly developed, Jan. 29 Bloomberg reporting revealed as it quoted Lam Research, described as a chip manufacturing equipment maker that services Samsung, SK Hynix, and U.S.-based Micron, as stating that the decline in orders is so severe it’s at “levels that we haven’t seen in 25 years.”
Greg Roh from analyst firm HMC Investment & Securities also told Bloomberg, “Chip equipment companies’ sales are plunging by around 30% to 50%.”
“This is not a normal situation,” he added.
Data harvested by Bloomberg showed that SK Hynix and Micron’s inventory levels had ballooned in the range of 50 percent since the start of 2022.
On Feb. 1, while computer processor maker AMD had reported December earnings that slightly beat analyst expectations, causing a 12 percent rally in stock price compounded by a same day announcement by the Federal Reserve Open Market Committee of a 0.25 percent interest rate hike.
“The company indicated a weak outlook for the January quarter, though was more optimistic about demand in the second half of 2023,” CNBC reported.
But more ominous was paraphrased statements by Roh that said the industry’s only real looming hope was “China’s recent exit from Covid-related restrictions [serving as a] catalyst to help the industry, as gadget makers will be able to bring manufacturing plants back to normal rhythm.”
However, while equities and commodity market bulls have long-since forecasted that a prophesied relaxation of Xi Jinping and his Chinese Communist Party’s draconian Zero-COVID lockdown and health-based social credit schema would result in a supercycle for the shipping and retail sectors, along with crude oil, two months later, little has manifested.
Perhaps the fundamental reason for the electronics’ industry’s suffering really does lie with a lack of consumer demand, but rather than resulting from the lifting of western social restrictions, the massive losses have been inflicted on mainland China by the Wuhan pneumonia epidemic.
As of Feb. 1, the Chinese Communist Party claims that China has only had 84,190 COVID-19 deaths since the pandemic began, according to Our World in Data.
But the number isn’t realistic. According to Google, who cites the U.S. Census Bureau and the World Bank, China has a population of 1.412 billion people as of 2021.
Adjusting for population, mainland China has suffered only 59.04 deaths per million people since the global pandemic, which originated within its borders, began.
Other Southeast Asian countries, such as Japan and South Korea, have suffered a population-adjusted 551.8 and 646.95 deaths per million people comparatively.
On the other side of the world, the United States has reported over 1.11 million deaths in total, amounting to 3,280 deaths per million people, while the United Kingdom isn’t far behind at 3,218 deaths per million people.
In recent months, Chinese crematoriums have been working nonstop and scheduling appointments out weeks or months in advance; meanwhile, deaths in the family have become virtually ubiquitous throughout the country, with even the Communist Party seeing many times the usual amount of deaths among elderly and retired cadres.
