Chip Shortage Turns into Surplus

Chip Shortage Turns into Surplus

The coronavirus pandemic left makers of personal computers, smartphones, and cars without the computer chips needed to make their products.

That suddenly changed during a period of three weeks from late May to June. High inflation, China's latest COVID restrictions and the war in Ukraine have reduced consumer spending -- especially on computers and smartphones.

Chip shortages turned into a surplus in some industries. By late June, memory chip company Micron Technology Inc. said it would reduce production. The sudden change in the market caught Micron by surprise, said Chief Business Officer Sumit Sadana.

Worries about an industry recession have severely affected computer chip stocks. The Philadelphia Semiconductor index has fallen 35 percent so far in 2022. That is far more than the S&P 500's 19 percent loss.

Hoarding is making the situation worse. Hoarding is the practice of collecting or storing a large amount of something. Many manufacturers stored a large number of computer chips during the pandemic.

Before that, those manufacturers ordered parts as close to production time as possible to avoid having extra supplies and to reduce storage space and spending.

Experts say the computer chip surplus has hit unevenly across business areas. Big suppliers of chips to electronics makers will be hit hardest by the decline, said semiconductor expert Tristan Gerra.

Computer chip design company Nvidia Corp could be hit especially hard as prices continue to fall, Gerra added. Nvidia produces graphic chips used for gaming and the digital money known as cryptocurrency.

Among those least affected by a surplus are Apple Inc's suppliers like Taiwan Semiconductor Manufacturing Co, said computer chip expert Matt Bryson. Demand remains high for Apple devices.

Industry executives and experts cannot say how many surplus chips are in storerooms around the world. But industry expert Mark Lipacis said supply numbers for the first three months of 2022 hit a record high at major electronics manufacturing services companies. The earlier record was over 20 years ago.

Manufacturers may decide to use up chips in storerooms instead of buying new ones, and cancel orders, Lipacis warned.

Some experts said automobile chipmakers are safe for now. But that may not last long.

Industry expert Stacy Rasgon told Reuters that automakers were ordering far more chips than they appeared to need.

That will create a problem when vehicle makers stop buying chips to use up their current supplies.

I’m Jonathan Evans.

Jane Lanhee Lee reported on this story for the Reuters news service. Jonathan Evans adapted this story for Learning English.

Words in This Story

consumer – n. a person who buys and uses up goods

semiconductor – n. a solid substance that conducts electricity imperfectly

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