Semiconductor Companies Cut Jobs as Consumer Demand Weakens

Weakening consumer demand for electronics has left semiconductor firms with an oversupply of chips.

And that in turn has led these companies to cut staff and reduce capital spending, The Wall Street Journal (WSJ) reported Tuesday (Dec. 27).

Chip inventory levels are “well above our target level,” Micron Technology CEO Sanjay Mehrotra said last week, as his company — which had missed earnings forecasts — announced it would reduce around 10% of its workforce.

After rising during the pandemic, the lead time between chip orders and deliveries has dropped off in recent months, the WSJ report said, citing an analysis by Susquehanna International Group. A separate study by UBS found that inventory levels were at their highest in more than a decade, roughly 40 days above the median for the chip sector.

It’s a drastically different scenario than what semiconductor companies and electronics makers were facing earlier this year. March saw the industry turn to Congress for help as chip inventory levels plummeted.

A January report by the U.S. Department of Commerce on risks to the semiconductor supply chain showed that the median inventory companies have on hand dropped from 40 days in 2019 to less than five last year.

“Digital transformation has led to unprecedented demand for chips, made more acute by the COVID pandemic and global disruptions in our supply chain,” Intel CEO Patrick Gelsinger told the Senate Committee on Commerce, Science and Transportation. “The chip shortage cost the U.S. economy $240 billion last year. We now expect the shortage to continue into at least 2024.”

In the months since then, rising inflation has forced consumers to cut back on purchases of non-essential items. Research by PYMNTS has shown Americans spending less on consumer electronics, toys and games, and appliances in favor of core items like food, fuel, and keeping a roof over their heads.

And a report from Mastercard showed spending on electronics declining during the holiday shopping season by a little over 5% from last year. Those numbers followed spending data from the Commerce Department that found sales of electronics and appliances dropped 1.5% in November.

Meanwhile, the chip shortage remains an issue in the auto industry, as PYMNTS noted last week. A report by the Financial Times featured interviews with carmakers and chip providers who said rising use of connected car functions and demand for electric vehicles will extend the industry’s chip drought into 2023.

Among those issuing this warning is Onsemi CEO Hassane El-Khoury, who said his firm had already “sold out” of silicon carbide chips used in electric cars, at least to the end of next year because of demand.

“There’s nothing you can do now to change 2023,” said El-Khoury. “We will be adding capacity every quarter, every month in 2023 to meet our customer demand.”