Chips: Manufacturers see “breathtaking” drop in demand

from Rhonda Bachman
After Intel, Nvidia and AMD, other chip manufacturers are now also warning of a sharp drop in demand. While the pandemic has caused sudden shortages in consumer electronics, a prolonged downturn now looks set to follow. Samsung, among others, has since reported a decline in operating profit.

After the chip shortage of recent years, manufacturers are now warning of a leveling off in demand. After the companies Intel, Nvidia and AMD had to adjust their shipping and sales forecasts for this year, other manufacturers are now following. Samsung, the world’s largest maker of memory chips, recently reported a 32% drop in operating profit. AMD previously disclosed that it missed previous revenue forecasts by about $1 billion. Analysts describe the developments as “breathtaking”.

Stock prices fall in the semiconductor supply chain

“It appears that end demand has deteriorated significantly in recent weeks and end customers seem to be aggressively destocking,” Bernstein’s Stacy Rasgon said. AMD’s drop in customer revenue is “admittedly a little astonishing”. But it wasn’t just the shares of AMD, Nvidia and Intel that collapsed. Chip manufacturers suppliers, PC companies such as Lenovo or Japan’s Disco Corp, whose systems grind, polish and dice chips, are also losing members on the stock market.

Consumer electronics companies that faced shortages during the pandemic are now facing a sudden drop in demand, while shipping and material costs remain high. Manufacturers who have been hoarding chips for two years would choose to cancel or postpone orders and reduce inventories for fear of a recession and cut costs.

But it is not only the reduced demand that is currently responsible for the problems of the chip manufacturers. The US government’s export restrictions would make trade with China more difficult. “If AMD and Nvidia can no longer sell their chips in China, memory manufacturers’ revenues will continue to deteriorate,” said Heo Pil-Seok, chief executive officer at Midas International Asset Management in Seoul. The PC segment, which has been losing ground to smartphones for years, seems to be particularly affected at the moment. However, a severe recession could also put pressure on demand in areas such as cloud computing, automotive manufacturing or factory automation.

Source: Bloomberg

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