America’s chipmakers wobble

“It’s been an unprecedented change in a short time. We’ve gone from a period of shortage to supply shortage,” said Akash Balkhwala, chief financial officer of chipmaker Qualcomm. period of decline in demand”.

According to the Financial Times , Qualcomm Inc. saw a 25% drop in revenue in the current quarter as slumping consumer spending hit smartphone sales.

Signaling a new wave of layoffs

Some of the top US chipmakers gave surprisingly weak revenue and earnings forecasts, and pointed to an upcoming round of job cuts.

American multinational semiconductor company Advanced Micro Devices (AMD) warned that sales of personal computer processors this quarter will drop 40% compared to 2021, with surprisingly low profit margins. .

Intel Corporation has lowered its revenue forecast again after the previous quarter. They warn thousands of jobs will be cut. The plan aims to reduce costs by $10 billion by 2025.

A year ago, when stock prices were at their peak, it was easy to believe that the chip industry had entered a new era.

At the time, huge new markets were opening up “from mobile phones to electric cars to supermarkets,” said Sanjay Mehrotra, chief executive officer of memory chip maker Micron. Add in supply chain issues that caused widespread chip shortages and prices rebounded.

In an interview with the Financial Times : Is the chip industry still subject to the vicious cycle of up and down that happened in the past?

“Our industry is different, and certainly Micron is very different,” Mr. Mehrotra said. But less than a year later, the chip industry downturn cycle has begun.

In September, Micron warned that its revenue for the quarter would fall to $4.25 billion, down 45% from a year ago.

The company also said its gross margin will drop from 46% to 25%. In response, they have almost halved their planned spending for 2023.

For Wall Street, the severity of the sudden cyclical downturn overshadowed the action the US took last month: Blocking the sale of chips and advanced chipmaking equipment to China.

Has the chip market bottomed yet?

The severity of the recent recession is largely due to an unbelievably rapid increase in inventories.

Realizing that consumer demand is weakening, starting with computers and smartphones, many companies have taken steps to reduce inventories, suspending new orders. This also contributed to push chip manufacturers into crisis.

Other factors that have also contributed to the oversupply are a surge in global chip production capacity.

Pat Moorhead, analyst at Moor Insights & Strategy – the world’s leading technology consulting, analysis and consulting firm – said overcapacity could become a long-term feature of the market.

Last week Qualcomm predicted that it would take smartphone makers two quarters to clear their inventory.

Some analysts also suggest that the magnitude of the sudden drop in some recent forecasts – far below Wall Street’s expectations – suggests that the chip market may be nearing a bottom.