That would imply there is a surplus somewhere, which there's not. There's a reduction in orders from a reduction in demand regardless of the state of the buffer.

Their is a surplus of labor.

It's still the same effect. Supply doesn't have to overshoot. Computer chips aren't just stamped out instantly; a complex chip with many hundreds of process steps can take months to manufacture. The latency of design/revision cycle means manufacturers are always doing everything they can not to overproduce.

The chip shortage lasted longer than you'd expect because everyone from end users to intermediaries has been hoarding them.

It's like the covid toilet paper shortage, even if you keep producing a thing at the same rate, stockpiling creates shortages which stimulate even more stockpiling.

When that eventually reverses, expect a temporary glut.

> a complex chip with many hundreds of process steps can take months to manufacture.

"Three months, 700 steps" for the GlobalFoundries Fab in Malta, N.Y.

https://www.seattletimes.com/business/technology/three-month...

Very possible that this is a factor, it's very hard to sort out. I see execs and investors are nervous. Is it the bullwhip effect or am I seeing a real increase or decrease? You'll know looking back in a few years!

I certainly hope you're right. Keep in mind: TSMC is entrenched in a lot of markets characterized by short lead times (say, < 1 month), and a 10% drop is a lot more than anyone -- including the company -- was expecting. Sometime ago I recall seeing charts showing that changes in TSMC's annual revenues are highly correlated with measures of global economic activity such as changes in Apple's global revenues and changes in global GDP.

Could you elaborate on what you’re referring to? I’m certainly not an expert, but my understanding was that the vast, vast majority of TSMC’s revenue comes from production of completely custom wafers on newer nodes, and I’m hard pressed to think of something in the industry with _longer_ lead times.

I was referring to lead time on orders for existing products, i.e., those for which TSMC already has manufacturing capacity online, like current iPhone chips. I wasn't referring to the time it takes to go from design to manufacturing!

In addition to the bullwhip effect, and the unwinding of stockpiling, there's probably some real reduction of demand, and that's probably mostly from China's failure to bounce back to pre-covid GDP.

During the shortage lead time for many semiconductor products went through the roof, so it would make sense that there has been at least some stockpiling. Probably you're right that that doesn't affect top tier products which are the bulk of the revenue, because those are the ones that got preferential access to fab capacity. Whether the stockpiling affected a big enough fraction of revenue to cause this effect is not something I have access to the data to know, so like you I am merely hoping that this is the explanation.

Both explanations are probably correctly.

This is a bullwhip effect, but that does cause a real build up in inventories and contraction in demand during the down part of the cycle.

And this will be concurrent with the higher rate environment and contraction in homebuilding and other sectors caused by Fed policy.

And so the TSMC warning is likely is forecasting a brewing recession, precipitated in part due to bullwhip effects.