Chipmakers tumble over fears of worst downturn in 10 years | Business and Economy News

Semiconductor stocks fell after Micron Technology Inc. became the latest chipmaker to warn of slowing demand, sparking concerns the industry is headed for a painful downturn.

In the United States, the Philadelphia Semiconductor Index fell 4.6% on Tuesday with all 30 members in the red, its biggest drop in about two months. In Asia, chip stocks from Taiwan Semiconductor Manufacturing Co. to Samsung Electronics Co., SK Hynix Inc. and Tokyo Electron Ltd. have collapsed. Investors are growing nervous as the notoriously cyclical industry is hurtling into a prolonged recession after years of widespread shortages that have led to heavy investment 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 rising inventories,” Christopher said. Citigroup Inc. analyst Danely in a report. “We expect every company in our coverage universe and every end market to experience a correction.”

Micron’s warning came after disappointing results from Nvidia Corp., Intel Corp. and Advanced Micro Devices Inc. Highlighting how quickly demand is evaporating, Micron said orders have deteriorated since the company’s last update just over a month ago. While the personal computer market was already sluggish, weak demand is now becoming more widespread.

“Compared to our last earnings call, we are seeing further weakening in demand due to adjustments extending beyond just consumers to other parts of the market, including data centers, industrial and automotive,” chief executive Sanjay Mehrotra said in an interview with Bloomberg Television.

Korean chipmakers and Asian counterparts fall after micron revenue warning

Semiconductor inventories surged in early July, in part on expectations that rampant shortages will support demand even in the midst of an economic downturn. But they have become a major drag on the broader Nasdaq 100 stock index after a string of disappointing financial results and forecasts from chipmakers including Nvidia. The benchmark rose nearly 20% from a June low before memory and hard drive maker Western Digital Corp. helped fuel a selloff following weak sales forecasts on Aug. 5. The Nasdaq 100 has fallen for three consecutive days since.

“It looks like a tough market for everyone after Nvidia and Micron had to cut their outlook,” said Edward Moya, senior market analyst at Oanda.

During the Covid pandemic, consumers stocked up on smartphones and computers while they worked and studied from home. Companies have also invested money in technology, particularly data centers that could be used to enable remote workers.

Chip shortages remain a factor. Average wait times for semiconductors jumped to 27 weeks in June, with companies ranging from Toyota Motor Corp. to Apple Inc. losing billions of dollars in sales because they couldn’t get enough chips. Before the pandemic, average lead times were generally less than 15 weeks.

On Wednesday, TSMC reported a 50% increase in revenue in July, stressing that major industry players still benefited from competition for supply.

Semiconductor delivery times fell by a day in June

Skeptics have warned that customers could order chips twice, artificially inflating the perception of demand. But companies like TSMC have poured money into capital expenditures, while governments from the United States and Europe to China and Japan have passed subsidies to boost domestic production capacity. There are now fears that such boosted investments could lead to overcapacity and persistent losses.

“The whole chip industry boomed after the pandemic and now we’re seeing a bit of a backlash,” said Yasuo Imanaka, chief analyst at Rakuten Securities. “The increase in demand for smartphones and PCs due to remote working is clearly waning. And we should be wary of the risks that inventory adjustments won’t be as light as Micron and other companies hoped just a few months ago.

On the same day as Micron’s warning, US President Joe Biden signed the Chips and Science Act, a $52 billion stimulus package designed to make it cheaper for companies to build domestic factories.

Citigroup’s Danely said it was particularly concerning to hear that automakers and other companies were cutting back.

“Micron is the first company to mention weakness in the automotive and industrial end markets, and we note that Micron has been a leading indicator of the recession all year,” he wrote. “We reiterate our negative stance on the semis and our belief that every stock and every end market will correct.”

Not all companies receive enough tokens. Toyota said its ability to secure semiconductors will remain unpredictable as it maintained a cautious profit outlook for the current year.

Yang Yuanqing, CEO of PC giant Lenovo Group Ltd., said in an earnings call on Wednesday that supplies were still mixed.

“We are seeing an improvement in chip supply since the second half of this year, as we predicted in previous quarters, particularly for our PC and smartphone businesses,” he said. “But we’re still seeing supply constraints in low-end chips.”

Makers of equipment used in chip production were among the biggest decliners on Tuesday after Micron announced plans to cut spending on new factories and equipment in response to falling orders. Lam Research Corp. fell 7.9%, while Applied Materials fell 7.6%.

Of the 10 worst performing stocks on the Nasdaq 100 this month, at least seven are chip stocks. Marvell Technology Inc. was down 7.9%, followed by Lam Research and NXP Semiconductors. The semiconductor index has fallen 27% this year, compared to a drop of 20% for the Nasdaq 100 and 14% for the S&P 500.

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