Chip Stocks Have Outgrown As Consumer Demand Continues to Decline


Why it matters: During the peak of the COVID-19 pandemic, many tech companies achieved record profits and purchases due to the boom in home work and study. However, most significant rises are followed by sharp falls, and the same companies are currently dealing with an excessive glut of chips and other products.

In 2020, there was a huge surge in demand for electronics, which we have never seen before. Due to blockages, shutdowns and other restrictions caused by the pandemic, workers and students were ordered to continue their work from home. Of course, not everyone had the necessary products for this, which explains the sharp boom in demand.

However, time passed and restrictions were gradually lifted, and the need for such products began to decrease. Unfortunately for many companies, record profits and sales eventually turned into a surplus of goods and items gathering dust on store shelves. Several CEOs of various chip manufacturers and OEMs have discussed their thoughts on the current situation they are facing, as seen in the Wall Street Journal report.

Micron CEO Sanjay Mehrotra claims that the number of chips in the company is “well above our target level” and that Micron has suffered so much from a sharp decline in demand that it recently cut about 10% of its workforce. Enrique Lores, CEO of HP, doesn’t expect these issues to clear up in the industry for at least the next two quarters, but he believes there are signs that they may start to fade soon.

Intel and AMD executives also talk about the problems their companies face. In October , Intel ‘s Pat Gelsinger noted: “It’s just hard to see any good news on the horizon.” Intel reported a 15% drop in sales and a 59% drop in overall profit in the third quarter of 2022 compared to the third quarter of 2021.

AMD has also suffered from a lack of demand in recent months, as it has not met expectations for the new AM5 platform and subsequent processors. AMD has started to supply fewer chips than there is demand to get rid of excess inventory. However, because of this, Su states that OEMs who use AMD processors in their off-the-shelf desktops or laptops, unfortunately, have not been able to replenish their stocks at the expected level.

PC manufacturers are not the only ones who have noticed a sharp drop in demand, as the smartphone industry has also seen a drop in sales in recent months. Qualcomm, the maker of Snapdragon processors that are used in many Samsung phones, recently lowered expectations due to declining demand for high-end smartphones.

Currently, companies will have to find ways to either cope with a sudden drop in demand, or completely bypass it. Despite all these setbacks, many executives still expect that by 2030, sales of chips will double and exceed $ 1 trillion, especially as the United States begins to stimulate the localization of chip production.


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