The Crisis Of The Semiconductor Industry, Chip Inventory Levels Are Well Above Our Target Level
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Consumer appetite for electronics has waned against a backdrop of rising interest rates, falling stock markets, and recession fears.
Problems
Nvidia and other chipmakers have been hit hard by increasing pressure on consumer spending, including high inflation and rising interest rates, which has triggered a wave of industry-wide cost cuts and layoffs. They are also struggling with the reversal of the surge in demand for electronics caused by the pandemic, which has driven the shift to working and learning from home.
In recent months. HP Inc. and Dell Technologies Inc., two of the biggest PC makers, say their products, which disappeared from shelves at the start of the pandemic, are now on the shelf longer.
Rival Advanced Micro Devices Inc., which also makes central processing units that go into personal computers, warned of elevated stock levels.
Nvidia situation
Graphics chip maker Nvidia Corp. issued a muted forecast in November and reported a sharp decline in quarterly sales, driven by weakening consumer demand for its video game chips after a pandemic-fueled boom and the onset of crypto winter.
America's largest chip company by value said revenue fell 17% to $5.93 billion after gaming segment sales more than halved in the fiscal third quarter. Net profit was $680 million.
Smartphone sales are also declining
It's not just PC shipments poised for their biggest drop in more than two decades that chipmakers are destroying the fortune of. Smartphone sales are also declining. Micron said it lowered its forecast for phone shipments this year from a forecast just three months earlier.
Qualcomm Inc., which supplies the chips that go into Samsung Electronics Co.'s flagship smartphones. and Apple Inc., has repeatedly lowered its sales forecasts this year. The company in November said it expected a persistently weak phone market and elevated chip inventories.
Negative effects on employees
Computer memory manufacturer Micron Technology Inc. is cutting jobs and expenses in response to a further weakening in demand for electronics and the chips it supplies, as it reported a sharp drop in sales and a net loss in the last quarter.
Two sides
What happens in chips is good news for consumers, who can get their hands on products from washing machines to laptops faster and sometimes cheaper than a year ago. For chipmakers, the change has sparked a wave of layoffs and capital spending cuts as companies try to restore profitability levels that have eroded in recent months.
Some chipmakers see stockpiling as an opportunity. While developers of the processors that are at the heart of the personal computer must deliver their product before a new, more powerful version is introduced, others create chips that will essentially remain the same for years.
Expectations
Chip executives said they expect a gradual recovery next year, although there is still uncertainty as to when an industry known for its sharp ups and downs cycles will be ready for another recovery.
Despite the short-term glut, chip directors are bracing for a long-term surge in demand for chips that will require them to build more factories. Industry executives expect chip sales to double by 2030, exceeding $1 trillion globally.
Micron
Micron's revenue fell 47% year-on-year in its fiscal first quarter, which ended December 1. Bit shipments fell by double-digit percentages from the previous quarter across Micron's entire product lineup, and average selling prices fell more than 20%.
Micron is aggressively cutting costs and capital spending to deal with this crisis. Total capital expenditures for fiscal year 2023 are expected to be a maximum of $7.5 billion, and the company expects capital expenditures for wafer equipment to decline by approximately 50% year-on-year.
The Share Price is practically the lowest of the year, and the current month is one of the weakest of the year. The price is currently just over $50.
Source: wsj.com, finance.yahoo.com
