With the supply crisis, prices of computer chips skyrocketed in the last few months making it more difficult for consumers to acquire these products at a fair price.
What Changed?
From late May to June, just over a three-week period, everything changed in the market. As a result of China’s latest Covid-lockdowns and the inflation caused by the war in Ukraine, just to mention examples, consumer spending dampened, especially regarding PCs and smartphones. In some sectors, chip shortages turned into an excess of supply. The Wall Street stocks and market prices suddenly turned around.
Worries about the industry’s downturn have reduced the value of chip stocks, with the Philadelphia Semiconductor index falling 35 per cent so far in 2022, far more than the S&P 500’s 19 per cent loss.
Hoarding Makes it Worse
Manufacturers have started to hoard computer chips during the lockdowns
Similarly to toilet paper production at the beginning of the pandemic, manufacturers have started to hoard computer chips during the lockdowns. Before these events, most of them only bought the necessary amount to create their products at the time they needed. This continuous procuring made it possible for them to avoid excess inventory, reduce warehouse capacity and cut upfront spending.
During the pandemic; however, these practices have shifted to what many only refer to as ‘just in case’. The problem with stockpiling is that producers bought up a small amount of supply when they could, making them now wonder why they have such excess inventory in their warehouses. The demand for production is not as high as their stock, making them essentially lose profits.
The Turn in Chip Supply Hit Unevenly Across Business Sectors
Large suppliers of chips to consumer electronics makers—especially low-end smartphones—will see the most loss by the downturn, said Tristan Gerra, Baird’s senior analyst for semiconductors.
Nvidia, the corporation that supplies most of the video cards used in gaming and mining cryptocurrency are just waiting for the inevitable. Prices of VGA’s are continuing to fall and it is only exacerbated by the recent crypto-market crash. Among those who are barely affected by the sudden excess amount are Apple’s supplies from Taiwan. Demand remains high for Apple devices that are more upmarket.
While industry executives and analysts are unable to say how many excess chips are in warehouses around the world, first-quarter inventory reached a record high at key electronics manufacturing services companies. The previous first-quarter record was over two decades ago, right before the dotcom bubble burst.
Chips and Their Use in Hungary
Hungarian economy is largely supported by the automotive industry in the country. There are four leading original equipment manufacturers in Hungary, namely Audi, Mercedes, Opel, and Suzuki. Of the aforementioned automotive companies, Audi was the most successful in 2020 in terms of revenue. These factories provide a large sum of the economical background Hungary has.
In conclusion, with chip prices falling and supplies stabilizing, the industry will most likely stabilize as well. This would mean that Hungarian economics are safe from the devastating inflation caused by the war and the energy crisis. While most EU countries struggle to provide and stockpile enough energy to supply their countries, Hungary has no energy-related issues at this point. This means that the automotive industry is able to function as expected, thus stabilizing the economy in the country.
With chip prices falling and supplies stabilizing, the industry will most likely stabilize as well
