The golden age of chip manufacturing seems to be fading, at least for now.
The just-concluded second-quarter earnings season confirms that semiconductor manufacturers are in for a tough time.
AMD (AMD) Nvidia (NVDA) and Intel (INTC) , three of the industry’s biggest players, reported starkly different performances. But even when the results were encouraging, as in the case of Advanced Micro Devices, the results fell far short of assuaging investor concerns.
Advanced Micro Devices posted a 70% year-over-year revenue increase to $6.6 billion, even as PC sales slowed sharply. The company benefited from strong demand from data centers.
But Micron (MU) and Qualcomm (QCOM) It also failed to send the message that the economic slowdown — and possibly a looming recession — won’t significantly dampen the industry’s momentum.
Go to “Weakness Period”
Chipmakers needed to see at least a decade of strong sales. This perspective has changed significantly.
However, research firm Gartner recently downgraded its forecasts for the industry to almost half of the expected revenue growth in 2022.
Global semiconductor revenue is now forecast to grow 7.4% in 2022 to $639 billion. Year-over-year, this percentage estimate is down from actual 2021 growth by 26.3%. And it’s lower than the second-quarter forecast that for all of 2022, chip revenue will grow 13.6%.
And in 2023, Gartner warned, forget about growth. The Stamford, Conn., research firm expects a 2.5 percent decline in overall chipmaker revenue.
“Although chip shortages are easing, the global semiconductor market is entering a period of weakness that will continue through 2023, when semiconductor revenue is forecast to decline 2.5 percent,” said Richard Gordon, practice vice president at Gartner. .
“We are already seeing weakness in the 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 consumers’ disposable income. This is affecting spending on electronic products such as computers and smartphones.”
The industry has seen strong demand during the post-pandemic recovery — so much so that shortages for some chip categories persist, while surpluses have overwhelmed other sectors.
Contractions in the PC 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 downward.
If the demand for processors and DRAM memory decreases, the chips intended for computer servers increase (up 20%).
When it comes to electric battery chips, demand continues to outstrip supply. However, Micron just revised down its revenue target for the current quarter.
Nvidia, which ties a large part of its business to the gaming, cryptocurrency and conversion industries, demonstrates the difficulties of the semiconductor sector.
Nvidia managed to post a 3% year-over-year revenue increase in the second quarter to $6.7 billion, according to a press release.
After a historic shortage of graphics cards, Nvidia is now in the opposite situation. It has too many GPUs, RTX 3000 graphics cards, in stock. The surplus comes from falling demand from cryptocurrency consumers and miners in recent months.
The company will reduce the prices of these cards, hoping to sell them before releasing the next generation. This next generation of graphics cards, the RTX 4000s, promises 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 on Aug. 24.
“We have implemented programs with our gaming channel partners to adjust pricing in the channel and shape current high-end desktop GPUs on price as we prepare for a new architecture launch. As reported last quarter, we expected cryptocurrency money to contribute in the demand for gaming”.
Founder and CEO Jensen Huang confirmed the difficult time his company is going through: “We are navigating supply chain transitions in a challenging macroeconomic environment and we will overcome it.