“Excessive chip inventory” are three words I wasn’t expecting to write anytime soon, and yet the world’s largest contract chip supplier is predicting that seemingly unlikely scenario. TSMC said in an earnings call on Thursday that while its net income hit record levels (up 76.4% year-on-year), softening demand in PCs, smartphones, and other consumer segments has led to an “excess inventory in the semiconductor supply chain.” The chipmaker predicts it will take “a few quarters” before things rebalance.
On the smartphone and PC front, declining demand follows two years of lockdowns and remote work, a period when consumers were eager to upgrade or buy new gadgets that they would rely upon. Now that home offices are fully equipped, demand has disappeared. Another culprit of the chip supply shortage, crypto mining, has imploded in recent months as crypto values continue their bottomless freefall. At the same time, geopolitical tension and soaring inflation are causing further uncertainty. TSMC isn’t the only company ringing the alarm bells: last month, Micron warned of decreasing demand for consumer products.
“Our suppliers have been facing greater challenges in supply chains, which are extending tool delivery times for both our advanced and mature nodes,” TSMC CEO C.C. Wei said.
To be clear, the chip shortage is far from over. While inventory for the high-end chips found in modern consumer gadgets is increasing, demand in other market segments, including data centers and automotive, has remained steady. Supply for those areas is tight, and TSMC must reallocate resources to account for such steady demand. Doing so may not be enough, as the chipmaker says consumer needs will continue to exceed “our ability to supply.”
TSMC says demand for leading 5-nanometer and 7nm chip technologies will help support its businesses going into the end of this year. Apple’s next iPhone could play a major part: TSMC is the sole chip supplier for the Cupertino giant and is responsible for the fabrication of its custom silicon, including the new M2 processor in the MacBook Pro and MacBook Air. TSMC also supplies fabless semiconductors Qualcomm, Nvidia, AMD, and MediaTek, among others.
“Now let me talk about TSMC’s long-term growth outlook. While macroeconomic headwinds bring near-term uncertainties that may persist, we believe the fundamental structural growth trajectory in the long-term semiconductor demand remains firmly in place,” Wei said.