Friday’s trading made for a tough day for chipmakers, as both AMD and Micron have signaled demand is waning as the economy cools, and inflation eats up discretionary income, forcing consumers to pinch pennies. Even coming off a shortage in chips for everything from cars to washing machines has proven unable to rescue the sector.
On Thursday, Micron Technology issued a dour forecast for sales, as well as worse revenue than expected for the current quarter, noting, demand had “weakened considerably is a very short period of time.”
Following that forecast, Taiwan’s TSMC and MediaTek, Dutch chip-gear maker ASML, Franco-Italian firm STMicroelectronics and Germany’s Infineon all declined Friday, on assumptions manufacturers of products which use computer chips are lowering their consumption to lower their future inventory, on assumptions of reduced sales in the future due to a cooling economy.
The Philadelphia Semiconductor index dropped 3.5%, adding to its 35% decline in the first half, as chip stocks dragged the S&P 500 down.
Chipmakers had enjoyed such robust demand during the pandemic as people working from home and remote learning rushed to upgrade home computers and smartphones, that they were unable to fully supply the industry.
As the resulting chip shortage took hold, automakers were unable to manufacture cars, and had to cut production dramatically or pay steep premiums for any chips they could source. The used car market exploded as new car buyers were forced to seek out vehicles on the secondary market.
Now soaring inflation is crippling sales, just as everyone returned to work and is no longer dependent on buying new devices to teleconference. Sales of PCs and smartphones have collapse as a result.
Needham analysts wrote in a note, “We believe it will take one-two quarters for the smartphone and PC customers to burn off the excess inventory before starting a rebuild.”
Even lockdowns in China have impacted demand. Micron noted Beijing’s lockdowns reduced their revenue 30% in this quarter. And smartphone shipments to the world’s biggest smartphone market, China, are projected to drop 18% this year, while worldwide shipment numbers will drop 7% due to everything from reduced sales in a cooling economy to the supply chain issues earlier this year.
Still, Micron said they expect long-term, to see demand return. And experts note that there will be a strong demand for chips going forward, as 5G, EVs, and high speed computers all mature as technologies.
