Based on changes in demand for computers, how should a decline in demand impact the financials of chip makers?

A decline in demand for computers directly impacts chip makers by leading to a decrease in the volume of chips required for production. As demand decreases, chip makers are likely to scale back their production levels, which in turn leads to a reduction in capital expenditures.

Capital expenditures refer to the funds used by a company to acquire, upgrade, and maintain physical assets such as machinery, buildings, and technology. With lower demand for chips, manufacturers will have less need to invest in new facilities or expand existing operations. They may delay or cancel plans for new equipment purchases or expansions, resulting in reduced capital expenditures.

By effectively managing their expenditures in response to declining demand, chip makers can maintain better control over their financial health in a challenging market environment. This adjustment is a strategic decision aimed at preserving cash flow and minimizing losses during periods of reduced consumer demand.

The other options do not directly relate to the impacts of declining demand on chip makers' operations in this context. For instance, cash flow from operations may not necessarily increase with lower demand, and the asset turnover ratio is likely to worsen as revenues decline despite stable or increasing asset bases. Gross margins are also expected to suffer as reduced production could lead to inefficiencies and fixed costs being spread over a smaller volume of sales