Tech deflation: Chip makers see 'amazing' demand drop as recession approaches

Tech deflation: Chip makers see ‘amazing’ demand drop as recession approaches

Evidence is accumulating that the technological downturn may be deeper and longer-lasting than feared.

Evidence is accumulating that the technological downturn may be deeper and longer-lasting than feared. After years of record capital spending, chipmakers are warning on a weekly basis that demand is fading. In the latest sign of a problem, Samsung Electronics Co. and Advanced Micro Devices Inc. For disappointing results within hours of each other that widely missed expectations.

Samsung – the world’s largest maker of memory chips – reported a 32% drop in operating income, while PC processor maker AMD said it would miss its previous forecast by about $1 billion. Analysts’ reactions ranged from “breathtaking” to “of da!”

The numbers came on the heels of bleak comments from Micron Technologies Inc and Kioxia Holdings, which have been cutting spending and production in a bid to stabilize falling prices. AMD shares fell, leading to losses in chip equipment suppliers from Tokyo Electron Co., Ltd. to PC makers including Lenovo Group Co., Ltd. on Friday. Disco Corp., whose equipment grinds, polishes and chops chips, fell 7.1% — most of the ground lost in about 16 months.

“It appears that end demand has deteriorated significantly in recent weeks, and end customers appear to be aggressively draining inventory,” Bernstein’s Stacey Rasgon said. The reduction in revenue for AMD customers is “a bit staggering.”

Read: ‘Difficult Times’ as Big Memory Makers Cut Production on Oversupply

Taiwan Semiconductor Manufacturing Co., Ltd. A nearly 48% rise in quarterly revenue to approximately NT$613 billion (US$19.4 billion) – in the upper range of its guidance in US dollar terms – underpinned by its growing influence as the world’s most advanced manufacturer. Chips. The downward trend in demand may not have been fully reflected in the numbers, especially given the sharp drop in the value of the Taiwan dollar, said Jeff Bo, an analyst at Haitong International Securities.

Weaker-than-expected demand for consumer electronics hits companies along with rising shipping and material costs. Cost cutting has become the new norm in the tech industry, and companies that have been hoarding chips during the pandemic are now choosing to cancel or delay orders and take advantage of the stockpile.

The semiconductor industry is also grappling with export restrictions from the US government, which is increasing pressure on its allies to prevent the shipment of advanced chips to a growing list of Chinese companies, as it seeks to contain the Asian country. This is hindering the work of chip makers from AMD to Nvidia Corp. In the world’s largest semiconductor market.

Heo Pil-suk, chief executive officer at Midas International Asset Management in Seoul, said supply and demand are not all behind the current downturn. “US government export controls will limit sales of IT companies in China and a significant portion of chip demand will weaken. If AMD and Nvidia cannot sell their chips in China, the profits of memory makers will deteriorate further.”

The PC sector, which for years has been falling behind smartphones, looks particularly weak. But a serious recession will affect demand even in areas that have remained strong, such as cloud computing, automobiles and factory automation.

“We will continue to steer clear of PC-focused names, which on our coverage list include AMD, Intel and Nvidia, due to the likely prolonged PC downturn next year and the continued weakness in consumer gaming,” Baird analyst Tristan Gerra and Tyler Bomba wrote in a note. to customers.

Stock prices have fallen across the semiconductor supply chain, from material makers such as JSR Corp. To chip equipment manufacturers such as Advantest Corp. and Screen Holdings Co.

The companies themselves are preparing for a long-term downturn. The head of Samsung’s chip business, Kyung Kyuhyun, said last month that he does not see a rebound in the memory market throughout the next year. Kyung told employees at an indoor event that Samsung cut its chip sales guidance in the second half of this year by 32% compared to expectations in April, according to the Korea Economic Daily.

What Bloomberg Intelligence says

PC demand will remain weak in the fourth quarter, due to the heavy inventory of PC processors as announced by chip maker AMD. The prospective depreciation may not be enough to offset weak sales of memory chips and consumer electronics, such as televisions.

– Masahiro Wakasugi, B analyst

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No party lasts forever, said Rasgon. “It’s a cyclical industry. There have been a few years of very strong growth” that has driven companies to increase their capacity. “You’re building a bid that turns out to be not as real as you thought.”

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