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After Two Years Of Shortage, Tech Companies Grapple With Chip Surplus

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After two years of global chip shortages sent prices for electronics skyrocketing, companies are grappling with the consequences of an inventory surplus as demand eases, The Wall Street Journal reported Tuesday.

Declining sales of both smartphones and personal computers (PC) have forced companies to cut earnings estimates, jobs and production, even as many build factories in anticipation of a recovery and long-term surge in demand, the WSJ reported. While this may reduce prices for consumers, reduced demand has driven an inventory surplus so extreme that companies now have a backlog that could last them 40 days longer than typical inventory levels, the WSJ reported, citing analysis by investment bank UBS.

“Today we have a large inventory, especially on the consumer side, which is driving very aggressive pricing because all of us are trying to reduce those inventories,” said PC-maker HP CEO Enrique Lores to investors in December, according to the WSJ. Lores anticipated that elevated inventory levels would likely last until roughly halfway through 2023.

Graphics and AI chip-maker Nvidia has struck a much more optimistic tone, anticipating that its inventory levels will recover by the end of the current fiscal quarter in January, according to the WSJ. Surplus inventory has cut into sales of Nvidia’s newest generation of graphics chips designed for video games, as distributors looked to offload existing chips before restocking with new products.

A similar situation is taking place with central processing units for PCs made by Advanced Micro Devices (AMD), the WSJ reported. CEO Lisa Su noted that the company was shipping fewer chips and PC-makers were reducing stock.

“Even as they were selling through their inventory, they were not replenishing stock to the same levels,” Su told the WSJ. “I think the market will continue to be volatile.”

AMD and Nvidia have also been forced to grapple with a U.S. export ban halting the sale of advanced AI-oriented chips to China implemented by the Biden administration in late August. Nvidia confirmed reports in early November that it had developed and was selling an alternative chip to Chinese customers, according to Reuters.

Micron, HP, AMD and Nvidia did not immediately respond to a Daily Caller News Foundation request for comment.

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