SEOUL – The semiconductor supply glut is finally coming to an end, bringing relief to chipmakers like Intel and Samsung. However, the demand for chips in industries outside of artificial intelligence (AI) remains stagnant. The major markets for chips, including smartphones, PCs, and data centers, have experienced a decline in 2023 due to reduced spending from corporate customers and consumers, as well as unfavorable global economic conditions. This oversupply of commodity chips has resulted in an operating loss of 15.2 trillion won ($12 billion) for Samsung and SK Hynix, the world’s two largest memory chipmakers.
Fortunately, the semiconductor industry is starting to see some improvement. Production cuts and a decline in PC shipments have contributed to the easing of the glut. Data from tech analysts Canalys shows that PC shipments only dropped by 11 percent in the June quarter compared to a 30-percent slump in the previous two quarters. The smartphone market is also showing signs of recovery, with cellphone shipments falling by 8 percent in the June quarter, an improvement from the 14 percent decline in the first quarter, according to research firm Counterpoint.
While the demand for chips in the AI industry has been increasing, it still represents a small fraction of overall chip demand. This has led to reduced corporate spending on servers as companies prioritize investment in AI. Intel CEO Pat Gelsinger predicts that the inventory glut in server central processing units (CPUs) will continue until the second half of the year. The outlook for data center chip sales is expected to decline in the third quarter but recover in the fourth quarter. The sluggish recovery in China, the largest chip buyer in the world, is also impacting the overall market.
Despite the challenges, chipmakers are adapting to the changing landscape. Companies like KLA Corp and Lam Research, which manufacture chip equipment, are benefiting from the AI boom. The increased adoption of AI servers and data centers is driving investment in chip equipment. In particular, SK Hynix has seen a significant increase in demand for AI server memory, with sales of its DRAM chips rising in the second quarter. The company leads the market in high bandwidth memory (HBM) DRAM used in generative AI.
Although the semiconductor industry still faces uncertainties, the gradual recovery and increasing demand in certain sectors offer hope for chipmakers.
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