The beginning of the end of a semiconductor supply glut is being celebrated by global chipmakers, from Intel to Samsung, but the forecast for demand from clients outside the artificial intelligence (AI) industry is still bleak.

Due to a sluggish global economy, high inflation, and rising interest rates, all of the key semiconductor sectors, including smartphones, PCs, and data centers, have experienced declines this year.

The result has been an unprecedented oversupply of commodity chips, which has led to a record combined operating loss for the first half of the year of 15.2 trillion won ($12 billion) for the two biggest memory chip manufacturers in the world, Samsung and SK Hynix.

However, this excess has begun to subside, mostly as a result of production cuts, and statistics from tech researchers Canalys revealed that the loss in PC shipments fell to 11% in the June quarter from a slump of 30% in each of the preceding two quarters.

According to research firm Counterpoint, the smartphone market is also improving, with phone shipments declining by 8% in the June quarter compared to 14% in the first quarter.

Woohyun Kim, chief financial officer at SK Hynix, said on an earnings call this week that “demand is recovering very gradually.”

He said that shipment forecasts for PCs and cellphones this year had been revised downward from prior projections. “The recent improvement in PC shipments has been mainly led by promotions and low-end models, meaning it provided limited impact on chip demand recovery,” he said.

Although the market for chips to support generative AI has grown quickly since OpenAI’s ChatGPT was introduced in late 2017, it still only represents a small portion of overall chip demand and is constraining corporate spending on servers as some businesses place a higher priority on investing in AI.

Pat Gelsinger, the CEO of Intel, stated on Thursday that a server CPU supply glut will last through the second half of the year and that data center chip sales will experience a slight decrease in the third quarter before rebounding in the fourth.

The world’s largest chip consumer, China, is seeing a slow recovery, which is further dimming the picture.

In response, Samsung and SK Hynix announced that they were prolonging production cuts of NAND memory chips, which are commonly used in smartphones to store digital data. They claimed that China’s reopening had fallen short of expectations that it would revitalize the smartphone industry.

Texas Instruments (TXN.O), a manufacturer of analog chips with significant exposure to China, forecast third-quarter sales and profit on Tuesday that fell short of Wall Street expectations due to a slow rebound in end-market demand that resulted in clients having to cancel contracts.

China has the biggest impact on TI’s business, according to Logan Purk, analyst at investment firm Edward Jones. At the end of fiscal 2022, China accounted for around half of all sales.

Early beneficiaries of the AI surge include companies like KLA Corp. and Lam Research that produce the machinery used to fabricate chips. This week, both firms provided quarterly revenue forecasts that exceeded Wall Street expectations, boosting their shares.

On a conference call with analysts, Lam CEO Tim Archer stated that “advanced AI servers have significantly higher leading-edge logic, memory and storage content than traditional servers, and every incremental 1% penetration of AI servers and data centers is expected to drive $1 billion to $1.5 billion of additional (chip equipment) investment.”

Additionally, chip manufacturers are producing more of the expensive chips needed to support AI-related processors.

According to SK Hynix, demand for AI server RAM increased by more than twice as much in the second quarter as it did in the first. The average selling price of its DRAM chips, which store data from applications while the system is in operation, increased in the second quarter compared to the first.

Leading provider of high bandwidth memory (HBM) DRAM for generative AI. According to TrendForce, it held a 50% market share in HBM as of 2022, followed by Samsung’s 40% and Micron’s (MU.O) 10%.