UNCERTAINITY IN THE CHIP MARKET

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UNCERTAINITY IN THE CHIP MARKET

Does uncertainty of the demand, which has engulfed the chip production impacted by the market conditions augur well for a large number of economies? Chips act as the brains of computers and are needed in just about every device with an on-off switch. The mapping of the requirements and making it meet the production lifecycle of individual companies and a well calibrated global supply chain is not an easy job. Presumably it was fine till pre-Covid, but the pandemic broke down the supply chain in an unimaginable way. But that it way pandemic impacted a large number of industries, civil aviation being a prime example.

Pandemic laid out bare the chinks in the chip industry armour. It showed how far the world can be impacted by this industry. As the learning was being digested by countries, economies and regions, lots of policy and geo-strategic conditions, which were outside the control of the industry has stated impacting them in a big way. First the Russia – Ukraine War, then the US restrictions and the war clouds over Taiwan, in all the world has not been to recover from the pandemic before the multiple factors have again started to hit at its underbelly. Will the broken state ever change, or would it become a permanent or at least for the foreseeable future. The seamless demand-supply production and enmeshed supply chain, seems to have become a thing of the past.

Few months ago, the chipmakers seemed to be on the top of the world. In July US passed $52 billion subsidy package that included grants to build new chip factories. Betting on federal subsidies and growing need of their products US chipmakers such as Intel, Micron Technology, Texas instruments and GlobalFoundries pledged huge expansions in domestic manufacturing. Of late, some semiconductors have started piling up. Good news for consumers and bad news for the industry. The investment / expansion plans are getting into rough weather given the slowdown in consumer demand. US restrictions on sales to China has created a weird situation, the unusual prospect of simultaneous shortage of some chips and glut of others.

The buoyant chipmakers have all of a sudden are forced to grapple with immense challenges. For companies the complex questions are; whether and when to boost production in this period of uncertainty, and more importantly how long would the current slowdown last. Hypergrowth to pause has been the comment of CEO of Arm. With regards to chips pertaining to automobiles, the availability is much better today. Prices of smartphones and computers are likely to fall as chip supplies grow and the prices for those two types of memory chips are likely to plummet. Prices still remain high for many types of semiconductors, way above pre-pandemic pricing. Sharp drop in revenue is being reported by the semiconductor companies. The China restrictions are negatively impacting US companies too. Nvidia is already feeling the heat. The chipmaking equipment sellers are also at the receiving end. Is it one of the boom and bust cycles or something worse, only time will tell.

UNCERTAINTY IS ANTITHETICAL TO PRODUCTION AND BUSINESS CERTAINTY.
Sanjay Sahay

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