Global chipmakers, from Intel to Samsung, are rejoicing as the semiconductor supply glut appears to be coming to an end. However, the outlook for chip demand from customers beyond the artificial intelligence (AI) industry remains bleak.
Major chip markets, such as smartphones, PCs, and data centers, have experienced a decline this year. Both corporate clients and consumers are cutting back on spending due to a weak global economy, high inflation, and rising interest rates.
This oversupply of commodity chips has resulted in record operating losses for Samsung and SK Hynix, the world’s two largest memory chipmakers, amounting to 15.2 trillion won ($12 billion) in the first half of the year.
Nevertheless, the situation is starting to improve as production cuts and a smaller decline in PC shipments have helped alleviate the glut. The smartphone market is also showing signs of recovery.
Despite this, chip demand for AI applications remains strong, especially after the launch of OpenAI’s ChatGPT. However, AI still represents a small portion of overall chip demand, and corporate spending on servers is being impacted as some companies prioritize investment in AI technology.
Intel’s CEO, Pat Gelsinger, anticipates that an 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 slightly in the third quarter before recovering in the fourth quarter.
China, the world’s largest chip buyer, is also experiencing a sluggish recovery, further dampening the overall chip demand outlook. Both Samsung and SK Hynix have noticed that China’s reopening did not lead to the expected revival of the smartphone market.
Companies like Texas Instruments, with significant exposure to China, are facing challenges with sluggish demand from end markets, leading to canceled orders from clients.
In summary, while the semiconductor supply glut is easing, the chip industry faces persistent challenges due to weak demand from non-AI sectors and slow recoveries in certain key markets.
