US chipmakers hit by sudden downturn after pandemic boom

The industry is facing a sudden downturn after dealing with a lot of demand and shortages.

Even for an industry used to frequent slumps, this one has been difficult to analyze and left researchers unsure of how it will play out.

At a time when manufacturers in many automotive and industrial markets still lack a reliable supply of chips, there has been a sudden increase in the number of memory chips.

At the moment that Washington has passed a long-awaited law to subsidize a huge increase in domestic chip manufacturing capacity, some of the biggest US chipmakers have slashed billions of dollars from planned capital spending.

Dan Hutcheson, who has analyzed chip cycles since the 1980s, said that the speed of the turn had been unprecedented.

He said that he has never seen a time when there was excessive inventory.

There has been a build-up of inventory in the chip supply chain. When there were enough chips on hand to support 1.2 months of production in February, global inventory levels jumped to 1.5 months in June and 1.7 months in July.

Consumers are retrenching as a result of tumbling PC sales. With fears of an economic slowdown, manufacturers of a wide range of equipment, which had been building inventory, have reversed course. It's not clear how much weakness in chip sales is related to supply chain problems.

Since late July, when Intel shocked the market with the news that revenue in its latest quarter had fallen, the suddenness of the turn has spread through the sector. Pat Gelsinger blamed it on the kind of inventory adjustment that only happens once every 10 years.