Demand for personal computers dropped dramatically in the second quarter, and is down 12.6% over the same period last year - the sharpest decline in nine years according to the Wall Street Journal, citing research by Gartner Inc.
According to the report, computer makers shipped 72 million PCs between April and June, down from 82.4 million during the same period in 2021.
"The decline we saw in the first quarter of 2022 has accelerated in the second quarter, driven by the ongoing geopolitical instability caused by the Russian Invasion of Ukraine, inflationary pressure on spending and a steep downturn in demand for Chromebooks," said Gartner research director Mikako Kitagawa.
Another firm, International Data Corp, found a 15.3% decline in global device shipments in the second quarter.
Their explanation? People splurged during the pandemic.
In May, several PC manufacturers such as HP and Dell are warning that consumer appetite for PCs was waning - particularly for lower-priced products.
And while the drop-off in demand has 'reverberated throughout the industry' - with Intel and Micron instituting hiring freezes or other cutbacks to 'adjust to the new market dynamics,' Reuters reports that the supply chain crisis has now resolved, leaving a glut of chips.
"Like nervous shoppers raiding supermarket aisles for toilet paper ahead of a COVID-19 lockdown, manufacturers stockpiled computer chips during the pandemic," adding that "hoarding is making it worse."
Now, they'll be wrestling with an oversupply amid cooling demand.
Like nervous shoppers raiding supermarket aisles for toilet paper ahead of a COVID-19 lockdown, manufacturers stockpiled computer chips during the pandemic.
Before that, "just in time" manufacturing was the norm for fiscally conservative companies, which ordered parts as close to production time as possible to avoid excess inventory, reduce warehouse capacity and cut upfront spending.
During the pandemic that shifted to what some jokingly call a "just in case" practice of stockpiling chips.
Chip shortages turned into a glut in some sectors, taking Wall Street by surprise. By late June, memory chip firm Micron Technology Inc (MU.O) said it would reduce production. The market reversal caught Micron off guard, admitted Chief Business Officer Sumit Sadana. read more
As U.S. chip earnings reporting season kicks off later this month, TechInsights' chip economist Dan Hutcheson warned of more bad news following Micron's grim forecast. "Micron kind of plowed the ground, with their honesty," he said. -Reuters
"Hoarding is a sign they think it's essential until one day they look at it and say, 'Why do I have all this inventory?" according to TechInsights' chip economist Dan Hutcheson, who has been forecasting for over 40 years. "It's kind of like toilet paper."
Who's going to be hardest hit?
According to Tristan Gerra, Baird's senior analyst for semiconductors, big suppliers of chips to consumer electronics makers, particularly low-end smartphones, are basically doomed.
Least affected will be Apple's suppliers, such as TSMC (Taiwan Semiconductor Manufacturing Co.), according to Wedbush's Matt Bryson, who notes that demand for Apple devices remains high. Those who provide automotive and data center chips will also do well, according to Gerra.
"In power management, we're going gangbusters," said one anonymous exec at a global chipmaker, but added that for radio frequency chips used in smartphones, "we're seeing a pullback because of handsets."
That said, Bernstein analyst Stacy Rasgon disagrees on automakers - noting that they ordered far more chips than they needed, and continue to do so. When automakers stop buying, things will get real(er).