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Globally, there is currently a large surplus of processors. This is mainly because consumers are buying fewer devices due to economic conditions. This writes the Wall Street Journal based on conversations with chip manufacturers. Not until the middle of next year is the situation likely to improve.

Unlike a few years ago, there is now a surplus of processors worldwide, the business newspaper writes. The cause of this surplus lies in consumers’ disappointing spending on electronics. This is mainly due to current economic conditions, such as rising inflation.

In addition, the production and supply of electronic goods, which often have chips on board, has returned to previous levels since the pandemic. This is true across all segments. Whereas these goods, such as laptops and PCs, as well as smartphones, were selling really well two years ago, they are now increasingly “gathering dust.

Also, the delivery time between chip production and delivery to manufacturers has increased, causing more and more processors to be out of stock. Meanwhile, the inventory of processors is said to be at its highest level in decades, according to the Wall Street Journal. This inventory is said to be above the average for the processor industry and supply chain.

Layoffs and capacity reductions

The excess capacity, however, is not good news for the chip industry itself. The surplus has produced a series of rounds of layoffs recently. Also, apart from a few producers operating countercyclically, manufacturers are investing less in their production capacity. In this way, they hope to compensate for disappointing profits.

Improvement in 2023

For the coming year, most chip producers expect the market to improve again. However, there is still much uncertainty as to when exactly these improvements will take place. This is different for each producer. By the middle of 2023, most producers should have reduced their inventories to normal and acceptable levels.

Tip: ‘Samsung plans to ramp up chip production capacity next year’