With Unpredictability in Global Chip Market, Buffer Stock Investment Is Key

The chip market in 2023 is difficult to understand, and even harder to predict moving into the new year. While companies can, it’s time to seriously consider buffer stock.

Geopolitics Signal Chip Market Danger

Although some relief has been seen in recent months from the chip shortage that became the new normal following the COVID-19 pandemic, it has been cold comfort to a bevy of other risks that have dominated industry discussions.

One of the most prominent is geopolitics, with rhetoric between Taiwan, China, and the United States seemingly increasing in temperature by the months. For example, U.S. officials have announced plans to tighten the export curbs in order to restrict the sale of AI chips to China, which is part of a broader effort to cut off China from technologies the U.S. believes could be adopted for military use. According to U.S.-based Nividia, of the largest AI chip providers in the world, this could have major consequences for the U.S. and global market.

“Over the long-term, restrictions prohibiting the sale of our datacenter GPUs to China, if implemented, would result in a permanent loss of opportunities for US industry to compete and lead in one of the world’s largest markets and impact on our future business and financial results,” said Nividia’s chief financial officer Colette Kress.

The U.S. has not been the only body taking such actions. As a form of retaliation, in May Beijing banned Chinese operators of critical information infrastructure from buying products from Micron Technologies May, Beijing banned Chinese operators of critical information infrastructure from buying products from Micron Technology.

Yangtze Memory Technologies CEO Chen Nanxiang, speaking at the Semicon China conference in Shanghai, stated concerns for the larger industry as a whole, doubting if it could realize its originally projected forecast of $1 trillion in industry sales by 2030. As chipmaking is a complex process requiring intellectual property, tools, and chemicals, and should any element of the process be curbed due to geopolitics, the consequences could be severe and long felt.

“Our industry itself is cyclical, and each practitioner has his own way of dealing with the cycle. However, the high degree of uncertainty we face is precisely due to the destruction of globalization,” he said, adding that he personally felt that the global industry was entering a “period of turmoil”.

These concerns are particularly concerning the anticipated trends of 2024, which include anticipated booms in AI, EVs, automation, consumer electronics, all of which combined will far outpace current global production levels. Although countries such as the U.S. have made significant investments in their own chip-making infrastructure, results are not expected to be seen for several years. With limited supply and projected historic levels of demand, the future could be nothing short of crushing.

The Value of Buffer Stock

Now is the perfect opportunity to consider the benefits of buffer stock. With supply of critical chips seeing a degree of recovery currently, companies that have any ambition for future stability and growth in these sectors need to shore up their production. Buffer stock will allow this, and companies can continue to operate through supply chain risks for month or years until the market recovers.

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