The industry had been looking forward to years of boom. But now the demand for PCs and smartphones is collapsing. Consumers don’t have the money for it, and leading chip manufacturers like Intel and Micron have to cut their investment plans.
The auto industry remains a beacon of hope for the industry. A particularly large number of chips are installed in electric cars such as the ID4 from Volkswagen.
Over the past two years, industrial managers have complained about nothing more than the lack of chips. If we had been served by our suppliers in good time, we would have been able to produce a lot more, companies emphasized when presenting their half-year results in the last few weeks.
Gloomy forecasts
But suddenly there is talk of an oversupply in the semiconductor industry, whose total turnover is now around 600 billion dollars. The English-language term for this, glut, is increasingly appearing in market reports.
Christopher Danely, analyst at the major US bank Citigroup, describes the situation in a particularly gloomy manner: The semiconductor industry is facing the worst downturn in at least a decade, if not 20 years, he will from the Bloomberg news agency quoted. Every company and every kind of chip would feel it.
The analysts of the market research company Gartner, which specializes in technology topics, do not see it quite so blackly. But they also say that the semiconductor industry in a period of weakness that will continue in the second half of 2022 and throughout next year.
What happened? Gartner experts point to the falling demand for electronic products such as PCs and smartphones. Both PCs and smartphones are key sales markets for the chip industry.
A mass rush like Black Friday 2017 in this Brazilian electronics market is unlikely to happen in most places this November – to the detriment of the semiconductor industry as well.
The home office is set up
General inflation, additional taxes and rising interest rates would put a strain on private household budgets. According to Gartner, the semiconductor industry will have to adjust to the fact that an estimated 13 percent fewer PCs will find buyers this year. In the first two years of the coronavirus pandemic, sales had increased sharply because many workers had been ordered to work from home and had to equip themselves with new or additional devices.
The investment boom in the home office should be over for the time being. A lot of money has also been spent on smartphones in the past two and a half years, which is probably why the market has reached a certain level of saturation. If you still own an older device, you could come to the conclusion that you need your money for other things for the time being and be satisfied with your existing smartphone. According to Gartner estimates, semiconductor manufacturers are only likely to increase sales with smartphone manufacturers by 3 percent in 2022. Last year they had increased their sales in this segment by a quarter.
Overall, the market researchers at Gartner predict growth of 7 percent for the semiconductor industry in 2022. By the end of July, however, they had still expected an increase of 13 percent. For 2023, they expect a 3 percent drop in sales.
The industry could therefore experience a downturn for the first time since 2019. At that time, too, the sector was confronted with overcapacities. Industry-wide sales had declined by a full 12 percent.
According to Gartner, deals with equipment providers for data storage centers should prove more resilient than the PC and smartphone markets. A lot of money is still flowing into cloud solutions, the reasoning goes. The company is also optimistic about the prospects in the automotive market. Because electric and autonomous cars require significantly more chips, it sees the value of semiconductors per vehicle rising by almost a third to around $930 between 2022 and 2025.
Nvidia is getting under the wheels
At the same time, there are voices in the market who expect a significantly broader downturn in the chip industry. The chief financial officer of US semiconductor manufacturer Micron Technology said in August that customers from the capital goods and automotive sectors had recently reduced orders. However, he was not yet sure whether they were only holding back because they had previously significantly increased their inventories or because their customers were increasingly experiencing sales problems.
The leading American semiconductor producers all had to accept significant setbacks in their businesses in the second quarter. Nvidia was hit particularly hard, with earnings per share falling by more than 70 percent compared to the previous year. Of the stock price The company, which has long enjoyed popularity among investors for its leadership position in the video game equipment maker business, is down nearly 60 percent from last year’s all-time high.
Intel, the world’s third-biggest semiconductor maker behind Taiwan Semiconductor Manufacturing (TSMC) and Samsung Electronics, announced last month that it would cut already planned fixed asset investments by $4 billion for the remainder of the year. Micron is also planning budget cuts for the coming year. The chip industry, which until recently had planned enormous expansion projects, seems to have gotten cold feet. In view of the existing overcapacities, there is no intention to create additional ones.
Swiss suppliers were also too optimistic
The slowdown in industry-wide investment activity is also affecting the business of suppliers. With their components, the two Swiss companies Comet and VAT equip systems that are essential for the production of chips.
Just last year, then-Comet boss Kevin Crofton in an interview with “Finanz und Wirtschaft” in a tone of conviction that the industry is facing a long-term boom – digitization is having such a strong impact on more and more areas of life. Now, like VAT, Comet has to factor in industry-wide investment cuts. Although both companies claim to be working at full capacity in production, they are currently still benefiting from orders that flowed to them during the boom phase before the recent slump.
The ominous things that may yet come are reflected in the share price: the prices of both companies have fallen by almost half since the beginning of the year.