Semiconductor stocks tumbled after Micron Technology Inc became the latest chipmaker to warn about slowing demand, triggering concern that the industry is heading into a painful downturn.
In the US on Tuesday, the Philadelphia semiconductor index sank 4.6 percent, with all 30 members in the red, its biggest drop in about two months.
In Asia, chip stocks from Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) to Samsung Electronics Co, SK Hynix Inc and Tokyo Electron Ltd slumped. Investors are growing increasingly skittish as the notoriously cyclical industry is hurtling toward a prolonged slump after years of widespread shortages that led to heavy investments in capacity.
Photo: Reuters
“We continue to believe we are entering the worst semiconductor downturn in at least a decade, and possibly since 2001 given the expectation of a recession and inventory build,” Citigroup Inc analyst Christopher Danely said in a report. “We expect every company in our coverage universe and every end market to experience a correction.”
The warning from Micron came after disappointing results from Nvidia Corp, Intel Corp and Advanced Micro Devices Inc.
Highlighting the speed with which demand is evaporating, Micron said orders have deteriorated since the company last gave an update just more than a month ago.
While the PC market had already been in a slump, the weakness in demand is now spreading widely.
“Compared to our last earnings call, we see further weakening in demand because of adjustments broadening outside of just consumers to other parts of the market including data centers, industrial and automotive,” Micron chief executive officer Sanjay Mehrotra said in an interview with Bloomberg Television.
During the COVID-19 pandemic, consumers stocked up on smartphones and computers as they worked and studied from home. Corporations poured money into technology, too, especially data centers that could be used to enable remote workers.
The average wait times for semiconductors soared to 27 weeks in June, with firms from Toyota Motor Corp to Apple Inc losing out on billions of dollars in sales because they could not get enough chips. Before the pandemic, average lead times were typically less than 15 weeks.
Skeptics warned that customers could be double ordering chips, artificially inflating the perception of demand.
Yet companies such as TSMC poured money into capital expenditures, while governments from the US and Europe to China and Japan embraced subsidies to build up domestic production capabilities. The fears now are that such turbo-charged investments could lead to overcapacity and persistent losses.
“The whole chip sector boomed after the pandemic and now we are seeing a bit of backlash,” Rakuten Securities Inc chief analyst Yasuo Imanaka said. “The demand boost for smartphones and PCs from remote working is clearly disappearing, and we should be wary of risks that inventory adjustments are not as mild as Micron and other companies were hoping for just a couple of months ago.”
On the same day as Micron’s warning, US President Joe Biden signed the Chips and Science Act, a US$52 billion stimulus package designed to make it cheaper for companies to build domestic factories.
Danely said it was particularly concerning to learn about automakers and other corporations cutting back.
“Micron is the first company to mention weakness in the automotive and industrial end markets, and we would note Micron has been a leading indicator in the downturn all year,” he wrote. “We reiterate our negative stance on semis and believe that every stock and every end market will correct.”
Not all companies are getting enough chips. Toyota said its ability to secure semiconductors would remain unpredictable, as it kept a conservative profit outlook for this year.
Lenovo Group Ltd (聯想) chief executive officer Yang Yuanqing (楊元慶) said during an earnings call yesterday that supplies were still mixed.
“We see chip supply improvement since the second half of this year as we predicted in previous quarters, particularly for our PC and smartphone businesses, but we still see some supply constraints in the low-end chips,” he said.
CONSIDERATIONS: The NSTC instructed the park to assist laid-off workers and urge companies to use furlough programs to ease the effects of falling demand Firms in the Hsinchu Science Park (新竹科學園區), which houses major tech companies, reported laying off 496 employees last month amid weakened global demand, Hsinchu Science Park Bureau director-general Wayne Wang (王永壯) said yesterday. Wang told a news conference that 48 companies in the science park laid off employees last month, including one hard disk supplier which let go 241 employees as part of a plant closure due to falling demand. Other companies reported sporadic layoffs as they adjusted to weakening demand, he said. Wang made the remarks after local media reported the layoffs over the weekend. Although the global economy is struggling with high
DEJA VU: Echoing the probe into real-estate giant Evergrande Group, the bank is under Beijing police scrutiny after last week, telling investors it is ‘severely insolvent’ Chinese authorities said they recently opened criminal investigations into Zhongzhi Enterprise Group Co’s (中植企業) money management business, days after the embattled shadow banking giant revealed a shortfall of US$36.4 billion in its balance sheet. Police in Beijing said in a statement on WeChat that they took “criminal mandatory measures” against multiple suspects, identifying one by their last name, Xie (解). They urged investors to report cases or provide leads to the authorities, including filing complaints online. Xie Zhikun (解直錕), the group’s founder, died in 2021, but several of his relatives are executives at the company. The statement did not elaborate on what
German Chancellor Olaf Scholz and German Minister for Economic Affairs and Climate Action Robert Habeck have promised to solve investment subsidy issues for Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Intel Corp, despite the country’s budget woes. Uncertainty over the funding to TSMC and Intel has arisen after a ruling by the German Federal Constitutional Court, which cast doubt over subsidies for construction of local semiconductor chip plants. On Nov. 15, the court ruled that the German government’s decision last year to reallocate 60 billion euros (US$65.74 billion) of unused funding from COVID-19 pandemic support measures to its Climate and Transformation Fund
NEW TREAD: The Taiwanese shoe brand paired with TSMC to turn silicon waste into a circular economy good, following its success making shoes from coffee grounds Ccilu International Inc (馳綠國際), a Taiwan-based footwear brand, has become the first company in the world to turn silicon waste from contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) into eco-friendly shoes. Last year, the global footwear industry saw the first pair of pressure-relief slippers made from recycled silicon waste by Ccilu. The brand continued to unveil follow-up collections, including sports shoes and massage slippers made from the same materials. In an interview with CNA, Ccilu CEO Wilson Hsu (許佳鳴) recalled the company’s innovation of the first pair of slippers made from silicon waste after its silicon waste treatment partner, Semisils Applied Materials
RSS