Demand for products like PCs and smartphones have fallen globally, but many chipmakers are pushing forward with their expansion plans.
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The semiconductor sector has been hit with a supply shortage in recent years, raising fears due to how vital these components are for various products and industries. Smartphones, PCs, cars and various other products rely on these chips.
The biggest chip makers have managed to turn this supply issue around, but now demand has skewed the opposite direction, leading to a global glut.
The recent chip shortage
One of the biggest causes of the semiconductor shortage was the Covid-19 pandemic, which led to global lockdowns, factory shutdowns and severe disruptions to supply chains.
This hit was amplified by a reliance on a few key industry players, such as Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics in Taiwan, and Samsung in South Korea.
Many companies began stockpiling chips to build up their inventories during this shortage, while efforts were made to increase supply and make the sector more resilient. The EU recently approved the Chips Act to boost its global share of chip production and make the bloc more resilient to future supply chain issues.
A collapse in demand
Unfortunately, the global economy has entered a crunch period. Demand for certain chip-related products has died down, while many consumers and businesses have tightened their spending.
Global PC sales have fallen for six consecutive quarters according to recent research, while the sector suffered a drop of nearly 30pc earlier this year. Smartphone sales have also suffered in almost all regions.
As a result of the plunge in demand, certain chip makers have suffered revenue hits. One prime example is Samsung, which has faced profit plunges of more than 95pc in recent quarters.
Expanding for the future
Despite the current glut, companies like Samsung expect the market to recover later this year, while others are continuing to invest heavily to meet future demand.
Intel is investing $25bn in Israel to build a new chip factory, according to prime minister Benjamin Netanyahu in June. The announcement came just days after Intel said it will build a new $4.6bn chip plant in Poland to meet growing European demand. The US giant has been trying to diversify its chip production globally in response to growing competition.
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