Semiconductor shortage could end abruptly as demand for smartphones, PCs and laptops falls
What is going on?
According to the data
one of the major chip manufacturers, the Chinese company SMIC, the demand for chips for electronic devices is gradually declining. One of the important factors is the accumulation of solid stocks of components necessary for the production of devices in the warehouses of companies that produce these electronic devices. Almost immediately after the electronic “boom” such companies
began to stockpile
chips for future use to protect production from stopping due to a lack of electronic components.
For example, last year, HP representatives announced the conclusion of lucrative contracts with manufacturers not only of processors, but also of other elements: power controllers, network adapters, display elements, and so on. Here HP managed to negotiate with Realtek, Richtek, Spectrum, MPS, NXP, Renesas and Silica.
Not far behind HP and the Chinese company Lenovo. Its representative says that the corporation is in a slightly better position than its competitors, since Lenovo’s business model involves the production of 50% of the necessary elements in-house and 50% from partners. However, the company also purchases elements for future use in order to avoid the risk of a shortage of necessary components with a further drop in production volumes.
And now in a number of regions, including China, the demand for smartphones and personal computers has declined significantly. Accordingly, companies use their own stocks and do not buy additional elements from suppliers yet. According to a SMIC spokesperson, many Chinese smartphone manufacturers have warehouses literally crammed with the elements necessary to create devices – the stock is enough for at least five months. And in the current geopolitical environment, companies will enter into new supply contracts only after current reserves are depleted.
True, in some areas, demand is still not falling. First of all, this concerns chips for wireless systems of the new Wi-Fi 6 standard, ADCs and other devices.
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Why is demand falling?
This is facilitated by the current geopolitical situation. Some markets have contracted, especially those affected by the sanctions. In addition, people who find themselves in a difficult situation are no longer interested in modern devices, the attention of consumers is gradually switching to essential goods. And now this trend continues to intensify, as the crisis covers more and more regions.
One such region, surprisingly, is China. This huge country has so far resisted the economic problems caused by the trade war with the United States. But China still cannot cope with the consequences of the COVID-19 pandemic. Moreover, with new outbreaks of infection, China blocks vast territories, whose inhabitants are forced to switch to a quarantine regime with all the ensuing conditions.
A SMIC representative cites his own company as an example, whose factories have not been operating at full capacity for several days. This happened, in particular, in the first quarter of 2022. These few days of forced downtime have led to a decline in production, which the company hopes to close in the summer.
In China for the first time in a long time the smartphone market has shrunk by 14.1% year on year in the first three months of 2022. This year, in China alone, experts predict a drop in smartphone sales by 200 million units. And this is truly a gigantic volume that can affect the entire logistics and production chain of the electronic systems industry in China.
In addition, the volume of orders from other countries, including, for example, Russia, is declining. Major manufacturers such as Oppo, Huawei and Xiaomi have halved the number of smartphones shipped to the country.
Experts believe that the avalanche-like growth in demand for laptops, smartphones and personal PCs will gradually slow down, and then begin to decline. During this time, the companies mentioned above will be able to negotiate both with chip suppliers and with each other. But chip manufacturers can start “price wars”. This, of course, is about Intel and AMD – the most influential chip suppliers now.
Intel and AMD will have to start a “war” for market share. At the same time, both companies receive approximately 50% of revenue from sales of semiconductor components for computers and laptops. Now the companies are doing well – they do not need to look for new markets, the volume of chips produced is not enough even for existing customers. Everything will change in the near future. Understanding this, companies are likely to start preparing for the “war” now.
Be that as it may, it seems that the forecasts of specialists are fair, and demand, as a result of a number of reasons, is starting to decline now. Moreover, the current geopolitical situation, and not just COVID-19 or anything else, is a very significant factor. But, of course, in order to see real changes in demand on a global scale, it will take some time. Now, shifts are possible both on the one side and on the other — i.e. both in terms of a further decline in demand for electronic devices, and in terms of increase.