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.
“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.
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