Shulou(Shulou.com)11/24 Report--

Beijing time on August 18 morning news, it is reported that not long ago, the global semiconductor industry is facing skyrocketing demand, as well as chip supply crisis. However, times have changed, and the days of the semiconductor industry have taken a turn for the worse, with analysts saying they "don't understand".

In the history of unprecedented complex situation, the semiconductor industry has experienced frequent periodic demand fluctuations, but this time the change is really complex. Many researchers are scratching their heads and wondering what the weakness of semiconductors will be like this time.

At present, there is a rapid oversupply in memory chips, personal computer processors and other chips, but at the same time, in automotive chips, industrial chips and other fields, semiconductor manufacturers are still unable to meet customers and establish a stable supply of chips.

The rapid weakness this time has prompted a number of American semiconductor giants to cut billions of dollars in capital spending plans.

Hutchison, CEO of VLSI Research, a semiconductor industry research firm, has been studying the chip industry since the 1980s and is a veteran semiconductor watcher. Hutchison said that this sharp decline in the semiconductor market, as well as a variety of contradictory forces exerted on the market, this situation is unprecedented.

Hutchison said he had never seen the current situation, with the semiconductor market in short supply on the one hand and large inventory of chips on the other.

According to the analysis of VLSI Research, the direct cause of this weakness is the substantial increase in inventory in the semiconductor supply chain since the beginning of this year. In February, for example, semiconductor manufacturers' inventory of chips could support 1.2 months of downstream production consumption, and global inventories increased to 1.4 months of consumption in June and 1.7 months in July.

If there is a deeper reason for the industry downturn, it should be that consumers are keeping an eye on wallets and that global sales of personal computers and smartphones have shrunk sharply.

Previously, manufacturers in many industries around the world have been increasing chip inventories to ensure supply in the event of another supply crisis in the future. However, these manufacturers also made a U-turn as the market worried about an economic slowdown or even a recession.

Due to the complex factors, in the current semiconductor market weakness, it is difficult to analyze whether it is due to the ongoing supply chain problems or the collapse of downstream customer demand.

The earliest signal is in July. The earliest sign of weak demand is in July. At the time, us semiconductor giant Intel announced a piece of news that shocked Wall Street analysts: Intel's revenue in the second quarter was $2.6 billion, 15 per cent less than analysts had expected.

Pat Gelsinger, Intel's chief executive, said the poor performance was due to a "once-in-a-decade" inventory adjustment in the semiconductor industry, as well as Intel's own operational problems.

Nvidia last week forecast a 44% drop in sales of game chips compared with the previous quarter. The company mainly produces graphics processors for video devices or artificial intelligence machine learning systems.

Micron Technology is one of the world's leading memory chip manufacturers. The company said free cash flow could be negative in the coming quarter ($1 billion in recent quarters).

Pressure from the semiconductor market has also spread to the Asian market. A month ago, Taiwan semiconductor contract manufacturing giant TSMC said it expected an inventory adjustment in the chip industry until next year.

Giants cut capital spending in the past, many American semiconductor companies planned to expand their local production facilities, but the market turned sharply, forcing them to reconsider their expansion plans.

Intel announced that it would reduce its capital expenditure by $4 billion for the rest of the year. However, the company still promised to give shareholders a "strong growth dividend".

Micron has promised to invest $40 billion in the United States by 2030. But then the company revised, saying it would slash capital spending next year because of a weak market.

At present, most semiconductor experts predict that the weakness this time will not be too great, because on the whole, the global economy is heading for a soft landing. However, the rapid changes in some market factors have made these experts think about the complex factors that influence each other.

Gartner, a technology market research firm, has predicted that the global semiconductor market grew by 26% last year and will halve this year. The company later revised its growth rate to 7%. For next year, Gartner thinks the global chip market will shrink by 2.5%, to $623 billion.

Wall Street reacted strangely to the weakness of the chip industry, while Wall Street reacted relatively calmly. The famous Philadelphia Semiconductor Index, which includes 30 major companies in semiconductor design, manufacturing and sales, has fallen by about 40% this year, but it should be noted that the US stock market is basically adjusting this year after soaring during the epidemic.

Surprisingly, the semiconductor industry showed signs of weakness in early July, but the Philadelphia Semiconductor Index has rebounded by 24% since then.

On Monday, Nvidia's shares rebounded to where they were before the poor earnings report. The results show that Nvidia's actual revenue is 17% lower than the previous forecast.

The scope of weakness is expanding over the past two years, the semiconductor industry has experienced severe inventories, followed by a shortage of supplies. Many analysts have been afraid to confidently judge how the economic slowdown will affect the semiconductor industry, as they did in the past. Some analysts expect the decline in semiconductors to be concentrated in PCs and smartphones, but that hope has been crushed by reality.

Nvidia's poor performance is mainly due to the collapse of the cliff in the game chip market. Note, however, that the company's data center processors grew by only 1% compared with the previous quarter, while wall street analysts expected a 10% increase. Nvidia analysts say the biggest impact on the company's data center processors is a shortage of supply rather than a collapse in demand. However, combined with Intel's data, there is a view that the once-fast-growing global cloud computing market (downstream customers of data center processors) is now cooling.

In recent days, there are signs that the range of weakness in semiconductors is expanding. Mark Murphy, Micron's chief financial officer, said industrial companies and carmakers were the latest customers to cut chip orders.

Mr Murphy says this is the latest change in industry demand. But Micron has not been able to tell whether these customers were adjusted because of high previous purchases or whether they were forced to cut orders because of falling demand from their downstream customers.

Either way, the result is the same for Meguiar. "We see clear signs of weak demand in these markets," Mr Murphy said. "

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