December 2, 2023

(Reuters) – A handful of companies, including chip makers Micron and AMD, have signaled a reversal in a two-year global shortage of semiconductor chips, as rising inflation and slowing economies squeeze consumer and business spending.

Micron Technology Inc (MU.O), a maker of memory chips, on Thursday forecast much worse-than-expected returns for the current quarter and said the market has “weakened significantly in a very short period of time.” Read more

Chip stocks fell on Friday, including Taiwan’s TSMC (2330.TW) and MediaTek (2454.TW), Dutch chip maker ASML (ASML.AS), French-Italian company STMicroelectronics and Germany’s Infineon (IFXGn.DE).

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During the pandemic, chip makers have been mired in trying to meet the huge demands from smartphone and PC (computer) makers that have seen increased demand from people working from home. The resulting shortage of chips has caused companies, including automakers, to cut production, delay shipments, and pay hefty premiums for major chips.

The recent COVID-19 lockdowns in China have led global executives to issue dire warnings about supply bottlenecks until recently.

On the other hand, Chinese restrictions affected consumer demand and boosted inflation in the world’s second largest economy, leading to a sharp drop in sales of smartphones and computers.

Advanced Micro Devices Inc (AMD.O) last month reported a slowdown in PC sales this year after two years of strong demand. Read more

Micron said the recent China shutdowns have caused China’s revenue to fall 30% in the current quarter.

Industry-wide smartphone shipments to China – the world’s largest smartphone market – are expected to shrink 18% this year, according to Gartner. It expects global shipments to decline by 7% due to crises in the supply chain and the Russian-Ukrainian war. Read more

Ranjit Atwal, senior analyst at Gartner, said the decline in smartphone and PC sales will ease the chip shortage this year.

Atwal, who had been expecting supply and demand for chips to equalize next year, expects this cycle to be brought forward this year. He said the decline in the smartphone market is not expected to be matched by any increase in demand for chips from automakers.

However, Micron executives said they were confident of long-term demand for their chips, and industry analysts said there was still significant demand for chips used in EVs, 5G and high-speed computing.

Next transformation

Taiwan’s Digitimes Daily, citing industry sources, said TSMC (2330.TW), the world’s largest contract chip maker, has seen its major customers cut chip orders for the rest of 2022. TSMC declined to comment.

Nikkei said last month, in an effort to maker No. 1 memory chips, Samsung Electronics (005930.KS), in an effort to check a stock glut, had paused new orders and asked some suppliers to delay or cut off component shipments for several weeks.

“I think the extent of the transformation has certainly been greater than anyone in the ecosystem would have expected,” Sumit Sadana, chief business officer of Micron, said Thursday.

Also, inflation is the highest in years in many countries including the US, which has increased recession risks and leads to job cuts and tighter budgets. Read more

Tesla (TSLA.O), which uses hundreds of chips in its electric cars, closed an office in California and fired about 200 workers. CEO Elon Musk previously said he had a “very bad” feeling about the economy and that the company needed to cut salaried employees by about 10%. Read more

Earlier this week, Volkswagen (VOWG_p.DE) said chip shortages are waning and starting to offset supply chain bottlenecks and rising costs. Read more

As recently as March, the German carmaker warned that supply bottlenecks would hurt growth this year after it sold 2 million fewer cars than planned last year due to the chip crisis. Read more

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Covered by Sayantani Ghosh in Singapore. Additional reporting by Subanta Mukherjee in Stockholm, Ben Blanchard in Taipei, Byung Wook Kim in Seoul; Editing by Kim Coogle

Our criteria: Thomson Reuters Trust Principles.

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