Chip stocks hammered as Micron forecasts waning demand

A handful of chipmakers, including Micron and AMD, have signalled waning demand as red-hot inflation squeezes spending, even as it eases a two-year global semiconductor shortage that has hit production of everything from cars to smartphones.

Chip stocks across the world tumbled on Friday after memory chip maker Micron Technology Inc. forecast on Thursday much worse-thanexpected revenue for the current quarter and said the market had “weakened considerably in a very short period of time.”

Shares of Taiwan’s TSMC and Mediatek, Dutch chipgear maker ASML, Francoitalian firm Stmicroelectronics and Germany’s Infineon all fell on Friday.

Chip stocks were the biggest drag on the S&P 500 on Friday. The Philadelphia Semiconductor index was down 3.5 per cent, after sliding 35 per cent in the first half of the year.

Chipmakers were overwhelmed trying to meet big orders from makers of smartphones and personal computers after demand surged from people working from home during the pandemic.

The resulting shortage led companies, including automakers, to slash production, delay shipments and pay steep premiums for key chips. Recent COVID-19 lockdowns in China had global executives issuing grave warnings about supply chokepoints until recently.

However, soaring inflation across the world has resulted in consumers tightening belts, with China curbs also hitting demand. As a result, sales of smartphones and PCS have declined sharply.

“We believe it will take one-two quarters for the smartphone and PC customers to burn off the excess inventory before starting a rebuild,” Needham analysts wrote in a note after Micron’s results.

Advanced Micro Devices Inc. flagged last month a slowdown in PC sales this year, while Micron said Beijing’s recent lockdowns caused a 30 per cent drop in its China revenue in the current quarter.

Industry-wide shipments of smartphones to China — the world’s biggest smartphone market — are expected to shrink by 18 per cent this year, according to Gartner. It expects worldwide shipments to drop seven per cent due to supplychain snarls and the Russiaukraine war.

Still, Micron executives said they were confident about demand for their chips in the long term and industry analysts said there was still a lot of demand for chips used in EVS, 5G and high-speed computing.

TSMC, the world’s largest contract chipmaker, has seen its major clients cut chip orders for the rest of 2022, Taiwanese daily Digitimes said on Friday, citing industry sources. TSMC declined to comment.

Top memory chip maker Samsung Electronics, in an attempt to check an inventory glut, temporarily halted new procurement orders and asked some suppliers to delay or cut shipments of components for several weeks, Nikkei said last month.