Chip Crisis Shows Signs of Easing, But There's a Catch
(Bloomberg Opinion) -- Since early in the pandemic, soaring demand for consumer electronics led to persistent chip shortages. Some recent signs suggest the situation may finally be starting to change.
An executive at the memory-chip maker Micron Technology Inc. said last week at an investor conference that demand for consumer PCs is slowing and that some of its customers have more chips lying around. A day later, Morgan Stanley downgraded several chip stocks in a note titled “Winter is Coming.” The analysts said that PC inventory is rising and that the smartphone market is likely to experience similar deterioration.
An investor maxim says technology companies tend to handily outperform during cyclical upswings while the reverse is true on the downside. Well, the industry is beginning to fall short of estimates.
Global PC shipments grew 13% in the second quarter, according to research firm IDC. That was below Evercore ISI’s expectation of 18% and a big deceleration from the 55% rise in the first quarter. Furthermore, wireless router manufacturer Netgear Inc. gave disappointing guidance last month, adding that sales were worse than expected in its consumer networking category.
Still, it’s probably too soon to declare an end to the shortage. Outbreaks of the delta variant of Covid-19 and the long-term efficacy of vaccines make predictions even harder than usual. Some chip analysts have said that reports of weakness are primarily seasonal and that sales will pick up through next year.
Shortages also vary by part. So even if you can walk into a store and find plenty of laptops, you’ll still struggle to get a new car or a video game console. In some cases, chip delivery times are longer than 20 weeks, the longest wait in at least four years.
But as I wrote last month, the pandemic rush to computers and printers won’t repeat itself. Once a worker or student buys a laptop, they don’t need another one for several years. Retailers are offering extensive discounts on nearly every PC-related category, with the exception of graphics cards. (It’s still a good time to be in the games business.)
The waning demand for PCs will likely last for at least several more quarters. Memory prices are dropping precipitously on fears the chip cycle is over. But it’s good news for anyone looking to buy a laptop, printer, webcam or router. Expect them to be much easier to find in stores this fall.
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Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.
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