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Chip Stocks Take A Beating As A Micron Prediction Indicates Dwindling Demand


Chip Stocks Take A Beating As A Micron Prediction Indicates Dwindling Demand
A few chipmakers, notably Micron and AMD, have signalled weakening demand as high inflation squeezes spending, even as it alleviates a two-year worldwide semiconductor scarcity that has hampered production of everything from automobiles to cellphones.
Global semiconductor stocks fell on Friday after memory chip maker Micron Technology Inc anticipated substantially lower-than-expected revenue for the current quarter on Thursday and said the market had "weakened considerably in a very short period of time."
On Friday, shares of Taiwan's TSMC and MediaTek, the Netherlands' ASML, the Franco-Italian business STMicroelectronics, and Germany's Infineon also plummeted.
On Friday, chip stocks were the greatest drag on the S&P 500. After falling 35 per centin the first half of the year, the Philadelphia Semiconductor index was down 3.5 per cent.
Chipmakers were overwhelmed trying to meet big orders from makers of smartphones and personal computers (PCs) after demand surged from people working from home during the pandemic.
As a result of the scarcity, companies, especially automakers, cut output, delayed shipments, and paid exorbitant prices for crucial chips. Until recently, recent COVID-19 lockdowns in China had global executives expressing dire warnings about supply chokepoints. However, rising global inflation has caused consumers to tighten their belts, with China's regulations also affecting consumption. As a result, smartphone and PC sales have plummeted.
"We believe it will take one-two quarters for the smartphone and PC customers to burn off the excess inventory before starting a rebuild," Needham analysts wrote in a note, after Micron's results.
Last month, Advanced Micro Devices Inc warned of a downturn in PC sales this year, while Micron claimed Beijing's recent lockdowns resulted in a 30 per cent decline in China revenue in the current quarter.
According to Gartner, global smartphone shipments to China, the world's largest smartphone market, are likely to decline by 18 per cent this year. It anticipates global shipments to fall by 7 per cent as a result of supply-chain issues and the Russia-Ukraine conflict. 
Nonetheless, Micron officials stated that they were optimistic in the long term demand for their chips, and industry analysts stated that there was still a lot of demand for chips used in EVs, 5G, and high-speed computing.
According to Taiwanese daily Digitimes, citing industry sources, TSMC, the world's largest contract chipmaker, has seen its main clients slash chip orders for the rest of 2022.
In an effort to control an inventory glut, top memory chip producer Samsung Electronics temporarily froze fresh procurement orders and urged some suppliers to delay or limit component shipments for several weeks, according to Nikkei last month.
"I think the extent of the shift has definitely been bigger than anyone was anticipating in the ecosystem," Micron's chief business officer, Sumit Sadana, said.
Tesla, which utilises hundreds of semiconductors in its electric vehicles, has closed a California office and laid off approximately 200 employees. Elon Musk, CEO of Tesla, previously stated that he had a "very terrible" feeling about the economy and that the company needs to eliminate paid workers by roughly 10 per cent.
"We expect a better supply of semiconductors in the second half of the year," Volkswagen AG Chief Financial Officer Arno Antlitz said Wednesday at the Reuters Automotive Europe conference. Demand for new vehicles may come down, "but our supply will go up."