Microchip: it’s a short step from boom to crash

The Korea Economic Daily reported that Samsung " lowered semiconductor sales forecasts for the second half of the year by more than 30%." The paper attributed the drop in semiconductor demand "to the freezing of the economy due to central bank rate hikes caused by global inflation."

The paper warns that: " As the semiconductor industry has entered a full-blown ice age, many forecasts in the industry predict that the recession will continue into the first half of next year, when semiconductor inventories are eliminated ."

Earlier this week, Samsung's Device Solutions division said it had "lowered our sales forecast for the second half of this year (the company's internal forecasts) by 32% from its April forecast."

This shouldn't come as a surprise, even if it comes only a little over a year after there was talk of the “Chip Crisis” and lack of supplies for this type of products now indispensable in a variety of industrial sectors. Yet here too the crisis, combined with the induced abundance of demand, begins to strike.

"Both DRAM and NAND flash vendors and customers have too many semiconductor stocks," an official told the Korea Economic Daily.

According to Bloomberg, another major semiconductor company, Japan's Kioxia Holdings Corp, has announced that it will reduce the start-up of silicon wafer production by 30% next month. “The deep cuts come from weakening demand for computers and smartphones and the semiconductor industry is likely to follow this trend as well. “The industry is facing tough times, except for a few,” said Kazunori Ito, analyst at Morningstar.

These negative developments in the global semiconductor market come as the largest US memory chip maker, Micron, reported poor revenue (despite a slight improvement in EPS and margins), but forecasts were turn out to be a total disaster.

Micron offered one of the most significant recession warnings issued by a large company to date: "Results were impacted by rapidly weakening consumer demand and significant customer inventory adjustments across all end markets." He added that due to the sharp decline in demand in the short term, he predicts that "supply growth will exceed demand growth in the 2022 calendar."

"Yes, we have a difficult market environment, but we are responding quickly with equities … Fiscal year 2023 is, of course, an unprecedented environment, but the long-term drivers are intact," said Sanjay Mehrotra, CEO of Micron, in an interview.

But it's not just about memory chips. We noted that graphics processing unit (GPU) prices plummeted to their lowest levels ever in China and chip deflation was already taking place in the US.

The iShares Semiconductor (SOXX) ETF has fallen 40% from its peak in late 2021 and the 200-day weekly moving average is being tested.

Earlier in the week, Bloomberg reported that Apple abandoned plans to increase iPhone production due to lack of demand. Weeks ago, FedEx warned that the global economy is "entering a global recession".

As we said previously, semiconductors are used in practically every technological sector: even in this field there is an excess of supply and a drop in demand then it is a sign that all high tech, together with a large part of industrial production, is suffering. and that we must prepare for a real, hard, industrial recession.

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The article Microchip: from boom to crash the step is short comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/microchip-dal-boom-al-crash-il-passo-e-breve/ on Sat, 01 Oct 2022 10:45:56 +0000.