including chip maker Micron (MU-US) and AMD (AMD-US) are signaling that a two-year-old global semiconductor chip shortage is easing as rising inflation and a cooling economy squeeze consumer and business spending.
Memory chip maker Micron Technology on Thursday (30th) forecast revenue for the current quarter well below expectations and said the market has weakened “substantially in a very short period of time.”
Chip stocks fell on Friday, including Taiwan’s TSMC (TSM-US) and MediaTek, Dutch chip equipment maker ASML, STMicroelectronics and Germany’s Infineon.
During the pandemic, chip makers were overwhelmed trying to meet large orders from smartphone and personal computer (PC) makers as demand for home workers surged. The resulting shortage of chips has caused industry players, including automakers, to cut production, delay shipments and pay hefty premiums for critical chips.
China’s recent coronavirus lockdown has further prompted global executives to issue dire warnings about supply bottlenecks.
On the other hand, China’s restrictions hit consumer demand and boosted local inflation, leading to a sharp drop in smartphone and PC sales.
Advanced Micro Devices Inc said last month that PC sales have slowed this year after two years of strong demand.
Micron said the recent lockdown in China caused its China revenue to drop 30% in the quarter.
Industry-wide smartphone shipments in China, the world’s largest smartphone market, are forecast to drop by 18 percent this year, according to Gartner. Global shipments are expected to drop 7% due to supply chain disruptions and the Russian-Ukrainian war.
Ranjit Atwal, a senior analyst at Gartner, said a decline in smartphone and PC sales will lead to an easing of chip shortages this year.
He expects chip supply and demand to be flat next year, with the cycle expected to be brought forward this year. The decline in the smartphone market is not expected to be offset by a surge in chip demand from automakers, he said.
However, Micron executives said they were confident in long-term demand for its chips. Industry analysts say there is still plenty of demand for chips used in electric vehicles, 5G and high-speed computing.
Taiwanese media Digitimes reported on Friday, citing industry sources, that a major customer of TSMC, the world’s largest chip foundry, has cut chip orders until the end of 2022. TSMC declined to comment.
The Nikkei reported last month that Samsung Electronics, the No. 1 memory chip maker, had temporarily halted new purchase orders and asked some suppliers to delay or reduce shipments of components by several weeks in order to drain excess inventory.
“I think the magnitude of the shift is definitely beyond anyone in the ecosystem expected,” Sumit Sadana, Micron’s chief commercial officer, said on Thursday.
In addition, inflation in many countries, including the U.S., is at a multi-year high, raising the risk of a recession and leading to layoffs and tight budgets.
Tesla (TSLA-US), which uses hundreds of chips in its electric vehicles, announced this week it was closing an office in California and laying off about 200 employees. CEO Elon Musk recently said he has a “super bad” feeling about the economy, saying the company needs to cut salaried employees by about 10%.
Earlier this week, Volkswagen said the shortage of chips was easing and was beginning to offset supply chain bottlenecks and rising costs.
The German automaker only warned in March that supply bottlenecks would hurt growth this year after it sold 2 million fewer cars last year than planned due to the chip crunch.