The golden age of chip production appears to be fading, at least for now.
The just-concluded second-quarter earnings season confirms that semiconductor makers are having a tough time.
OMG (OMG) Nvidia (NVDA) and Intel (INTC) , three of the biggest players in the industry, reported completely different performances. But even when the results were encouraging, as in the case of Advanced Micro Devices, the results fell far short of investors’ concerns.
Advanced Micro Devices saw revenue growth of 70% year-over-year to $6.6 billion, even as personal computer sales declined sharply. The company benefited from strong demand from data centers.
But Micron (A) and Qualcomm (QCOM) it also failed to send the message that the economic slowdown – and possibly an impending recession – will not significantly reduce the sector’s momentum.
Switch to a ‘Period of Weakness’
Chip makers should have at least a decade of strong sales. This perspective has changed considerably.
But research firm Gartner recently downgraded its forecasts for the industry, nearly halving expected revenue growth in 2022.
Global semiconductor revenue is now projected to grow 7.4% in 2022 to $639 billion. Year over year, this percentage estimate is below the 2021 actual growth of 26.3%. And it’s below the second-quarter forecast that, for the whole of 2022, chip revenue would grow 13.6%.
And in 2023, Gartner warned, forget about growth. The Stamford, Connecticut-based research firm expects a 2.5% drop in overall chip makers’ revenue.
“Although chip shortages are decreasing, the global semiconductor market is entering a period of weakness that will persist until 2023, when semiconductor revenue is expected to decline by 2.5%,” said Richard Gordon, vice president of practice at Gartner.
“We are already seeing weakness in semiconductor end markets, especially those exposed to consumer spending.
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“Rising inflation, taxes and interest rates, along with higher energy and fuel costs, are putting pressure on consumer disposable income. This is affecting spending on electronics such as PCs and smartphones.”
The sector has seen strong demand during the post-pandemic recovery – so much so that shortages of certain categories of chips persist, while surpluses have flooded other sectors.
Contractions in the personal computer and smartphone markets are expected in 2022 (by 9.5% and 7.1%, respectively), according to Gartner, forcing Intel and AMD in particular to revise their forecasts downwards.
If demand for processors and DRAM drops, chips destined for computer servers are up (20% growth).
When it comes to chips for electric batteries, demand still exceeds supply. But Micron still revised its revenue target for the current quarter downwards.
Nvidia, which links much of its business to the gaming, cryptocurrency and metaverse industries, demonstrates the difficulties of the semiconductor sector.
Nvidia was able to post a 3% annual increase in revenue in the second quarter to $6.7 billion, according to a press release.
After a historic shortage of graphics cards, Nvidia now finds itself in the opposite situation. It has many graphics processing units, RTX 3000 graphics cards, in stock. The surplus stems from falling demand from cryptocurrency consumers and miners in recent months.
The company will lower the prices of these cards, hoping to sell them off before releasing the next generation. This next generation of graphics cards, the RTX 4000s, promise to be twice as powerful as the current ones.
“Macroeconomic headwinds around the world have led to a sudden slowdown in consumer demand,” Chief Financial Officer Colette Kress told analysts Aug. 24.
“We have implemented programs with our gaming channel partners to adjust channel pricing and position current high-end desktop GPUs as we prepare for the release of a new architecture. Contribution to gaming demand.”
Founder and CEO Jensen Huang confirmed the difficult time his company is going through: “We are navigating our supply chain transitions in a challenging macro environment and we will get through it.