After recent chip shortages, chip makers now find that the demand for chips is declining substantially.
- Chip manufacturers are preparing for layoffs and instituting hiring freezes as the demand for semiconductor chips drops sharply.
- While chip shortages caused many manufacturers to plan for expansions, a sudden reversal in demand has caused manufacturers to pause their plans and prepare for a change in customer buying behavior.
- High inventory levels are also leading to decreased output from the factories.
- Companies warn investors that major changes are coming.
Why it’s news
Intel and Qualcomm are two major manufacturers who have announced spending cuts. Intel plans to lay off staff to reduce costs by as much as $10 billion by 2025. Qualcomm is freezing hiring plans and cutting costs in other areas as they prepare for a poor performance this quarter.
Despite cutting its staff, Intel plans to continue working on plants that are scheduled to come online in the next few years, but will wait to make some of the more expensive equipment purchases.
Poor performances are the norm this year across the tech industry. Major tech companies like Amazon have already announced plans to reduce spending.
Chip demand typically comes in waves, but pandemic needs gave the chip industry an unexpectedly long boost. More people working from home required more technology which ran on semiconductor chips. Now that demand is falling to a more regular level, the chip industry could be in for a shock.
Major chip makers are making plans to reduce their capital spending. During the boom, their budgets soared to record heights. Now, Micron Technology has dropped its spending plans by around 30%. Intel has slashed $2 billion from its budget and the largest chip manufacturer, Taiwan Semiconductor Manufacturing cut its spending plans by 10%.
Typically, before the holidays, electronics companies tend to stock up on their chip supplies, but that too is different this year. Electronics manufacturers stocked up on chips during the shortage and are now working their way through excess inventory.
Chip manufacturers will likely have to wait for customers to use up their stockpiles of chips before sales will come back up.
Backing up a bit
New policies from the Biden administration have encouraged chip manufacturers to do business in the U.S. rather than China. Following the chip shortage during the pandemic, U.S. officials grew concerned about national security as it related to semiconductor chips.
Semiconductor chips are found in nearly every piece of modern technology, from everyday microwaves to military equipment. Without control of this supply chain, the U.S. could face disaster if the supply were to be cut off.
Policies from the Biden administration including the Chips & Science Act and others encourage chip production in the U.S., restrict exports of certain chips used in artificial intelligence, and restrict the sale of semiconductor equipment to Chinese companies.
China responded to President Joe Biden’s announcement of these restrictions, saying that the move will hurt the global economy and affect supply chains.