Tech giants have issued warnings, and semiconductor demand has begun to weaken?
The semiconductor boom, which has faced global shortages during the pandemic, is beginning to show signs of weakness, under the double whammy of slumping PC sales and a slump in the cryptocurrency market, The Wall Street Journal reported on July 4.
The article points out that people's rush to buy laptops and other electronic tools in the early days of the epidemic has dissipated, as inflation has made people reluctant to upgrade the equipment they bought in the past few years in the process of shifting to remote work and learning. The waning of the cryptocurrency craze finally saw people flocking to computer stores in the early days of the pandemic to buy chips for cryptocurrency mining and high-end video games.
The pressure has not eased in some areas of high demand, such as automotive chips and data center chips, but cooling demand in the consumer sector has prompted warnings from chip giants such as Intel and Nvidia. After two years of surging demand for their products, they see things going to be tougher in the coming months.
Intel Chief Financial Officer David Zinsner said in June that the second half of the year is likely to be "more chaotic" than the first, and the company will adjust spending and investments based on that reality. Intel took some austerity measures in June, including temporarily halting hiring in its PC chip division.
Memory maker Micron Technology last week issued a conservative sales forecast, with Chief Executive Sanjay Mehrotra warning that "the industry demand environment has cooled," with declining PC and smartphone sales. The company said it was cutting some spending plans to adapt to new market dynamics.
Chip company executives, computer retailers and distributors noted that the market downturn has gotten worse in recent months than many expected at the beginning of the year, as U.S. inflation hit 8.6% in May, The highest level in more than 40 years led the Federal Reserve to raise interest rates.
"Demand spikes when it's high and plummets when it's low," said Kent Tibbils, vice president of marketing at ASI Corp, a large electronics distributor in California, referring to the drop in computer demand around March. Normally, it's a gradual line, but now it's a bit more volatile than we would normally expect."
Nvidia said it was scaling back hiring in preparation for a slowdown in two of its key areas — cryptocurrency mining and video games. The company's chips are used for the heavy-duty computing work required to mine new cryptocurrency tokens and have been favored by video gamers, who have seen a surge in home entertainment during the pandemic, buying graphics cards for their games. Both areas are weakening, with Nvidia stock down 48% in the first half of the year.
PC shipments are expected to fall 8.2% this year to 321.2 million units, according to International Data Corp., which lowered its forecast in June. These numbers are a sharp reversal from the peak of the pandemic, when shipments rose 13% in the first year and 15% in the second.
AMD CEO Lisa Su said last month that the company has taken a conservative view on PC sales this year and expects computer demand to be roughly flat for the next few years.
Computer makers Hewlett-Packard and Dell say they are dealing with weak demand for low-end consumer PCs, and they can only make small profits but more sales. PC shipments have been hit not only because of weakening demand for new equipment, but also because of the supply chain congestion in mainland China, where the computer is concentrated, due to the epidemic blockade, and the impact of the Russian-Ukrainian war.
Analysts have become more pessimistic about the chip company's sales outlook. In February, analysts estimated Intel's second-quarter sales to be around $18.4 billion, according to FactSet, while the average valuation is now less than $18 billion, a figure below Intel's forecast. Estimates for Nvidia Corp. sales also fell 4% during the period, matching the company's $8.1 billion sales valuation for the quarter.
Analysts at Bank of America said last week: "Recessions in semiconductors happen every 3-4 years, so there could be a next one."
It's not just chipmakers that are resetting their forecasts, Microsoft Corp. also lowered its earnings outlook in June, citing a stronger dollar that has eroded the value of its sales abroad and that the company has slowed hiring.
There's a potential silver lining for customers still in shopping mode, with wait times starting to dwindle for some chips after a two-year chip drought. According to Susquehanna Financial Group, the overall lead time for chips in May reached a record 27 weeks, but the MCU, as an indispensable chip, has always plagued automakers, and now the delivery time has shortened.
