Latest Business News
Oversupply of NAND and DRAM Memory Chips Impacts Semiconductor Market
Impact of Decreased Demand
The oversupply of NAND and DRAM memory chips is a result of decreased demand for products like smartphones and laptops. Many people purchased these devices during the pandemic, leading to a decline in demand. As a result, the makers of these end products stopped ordering chips and instead focused on selling through their existing inventory. This sudden drop in demand created a "bullwhip" effect in the semiconductor market, causing a surplus of chips in the supply chain.
Although some types of semiconductors are not in oversupply, chips made for specific purposes are not easily exchanged for other semiconductors. Therefore, their lead times and prices remain high.
Profitability Challenges for Chip Manufacturers
The shortage of semiconductors during the pandemic boosted chip makers' profits as prices soared. However, this year, companies like Samsung, SK Hynix, and Micron have faced challenges.
For instance, Samsung's operating profit for the second quarter of this year declined by 95% compared to the same period last year. Likewise, SK Hynix swung to a loss in the second quarter, while Taiwan Semiconductor Manufacturing Company experienced its first quarterly profit decline in four years.
The weak PC market and the pressure on the global smartphone market are expected to have an impact on the profitability of these chip manufacturers.
Efforts to Stabilize the Market
In an attempt to stabilize the market and reduce the oversupply of chips, major memory chip firms have announced production cuts. Samsung anticipates a global demand recovery in the second half of the year, and others have expressed a similar sentiment.
However, Taiwan Semiconductor Manufacturing Company expects continued inventory adjustment from customers. Analysts believe that the recovery for these firms will depend on a macroeconomic rebound and an increase in demand for end products like consumer electronics.
As the semiconductor market navigates these challenges, the future remains uncertain, and any significant recovery will depend on various factors, including the overall macroeconomic environment.
Conclusion: Implications for New Businesses in the Semiconductor Market
The oversupply of NAND and DRAM memory chips and its impact on the semiconductor market present both challenges and opportunities for new businesses entering this industry.
- New businesses may face intense competition from established chip manufacturers who are struggling to maintain profitability amidst the oversupply. The market may be saturated, making it difficult for newcomers to establish themselves.
- The decreased demand for smartphones and laptops, which are major consumers of memory chips, could limit the market size and potential customer base for new businesses.
- The high lead times and prices for specific-purpose semiconductors, which are not easily exchanged for other chips, could deter new businesses from entering niche sectors.
- The production cuts announced by major memory chip firms create an opportunity for new businesses to fill the gap and offer alternative solutions to meet specific demands.
- If the overall macroeconomic environment rebounds and demand for consumer electronics increases, new businesses can leverage this upswing to establish a foothold in the semiconductor market.
- New businesses can focus on innovative chip technologies, such as those used in emerging sectors like artificial intelligence, internet of things, and electric vehicles, where there may be less oversupply and higher demand.
While the semiconductor market faces uncertainty and challenges due to the oversupply of memory chips, new businesses must carefully assess the market landscape and identify unique opportunities for growth. Adapting to the changing demands and technological advancements in the industry will be crucial for success. With strategic planning, innovation, and a keen understanding of market dynamics, new businesses can navigate these challenges and position themselves to thrive in the semiconductor market.Article First Published at: https://www.cnbc.com/2023/07/28/how-the-world-went-from-a-semiconductor-shortage-to-a-major-glut.html