Signs are piling up that the tech downturn may be deeper and longer-lasting than feared.
- Samsung and AMD both posted earnings that fell short of expectations.
- Recent disappointing results fuel worries that a rebound is further away.
Chipmakers are warning that demand is stalling on a weekly basis after years of record capital spending. The most recent indicator of danger was the hours-separated release of poor results by Samsung Electronics Co. And Advanced Micro Devices Inc. that significantly below expectations.
The largest manufacturer of memory chips in the world, Samsung, reported a 32% decline in operating revenue, and AMD. Which makes PC processor chips, warned it will fall short of its prior prediction by nearly $1 billion.
The comments of analysts ranged from “breathtaking” to “Uff-da!”
These figures came in the wake of sombre remarks from memory manufacturers Micron Technologies Inc. And Kioxia Holdings Corp. Which are cutting spending and output in an effort to stabilise falling prices.
On Friday, semiconductor and PC manufacturers from Taiwan Semiconductor Manufacturing Co. to Lenovo Group Ltd. All suffered losses as a result of falling AMD shares.
According to Bernstein’s Stacy Rasgon, “it seems end demand has probably weakened significantly in recent weeks, and end customers appear to be aggressively draining inventory.
It is “admittedly a little breathtaking” how much AMD’s client revenue has decreased.
Chipmakers Facing Recession
Companies are being impacted by a lower-than-anticipated demand for consumer gadgets as well as rising shipping and material prices.
The computer sector has adopted cost-cutting as the new standard, and companies who stockpiled chips during the pandemic are now choosing to cancel or delay purchases and use inventory.
The US government is increasing pressure on its allies to forbid the sale of cutting-edge chips to an ever-growing list of Chinese enterprises in an effort to limit the Asian nation, and this is putting additional strain on the semiconductor industry.
This is hurting sales for chipmakers in the largest semiconductor market in the world, including AMD and Nvidia Corp.
This downturn isn’t just being caused by the usual dynamics of supply and demand. Geopolitical concerns have made it different from previous cycles, according to Heo Pil-Seok, CEO of Midas International Asset Management in Seoul.
“The US government’s export regulations would further restrict the sales of IT companies in China, and a sizable portion of the chip demand would be weakened.
The profits of memory manufacturers will further decline if AMD and Nvidia are unable to sell their processors in China.
The businesses are preparing for a protracted downturn. Kyung Kyehyun, the chairman of Samsung’s semiconductor division, said he doesn’t see a sustained recovery in the memory market in 2019.
According to the Korea Economic Daily, Kyung informed staff members at an internal gathering that Samsung reduced its guidance for semiconductor sales in the second half of this year by 32% from an estimate in April.
Rasgon answered, “No celebration lasts forever. “It’s a seasonal business. A few years saw very, very significant growth, which drove businesses to increase capacity.
You create supply in response to demand that isn’t as strong as you initially believed.