More chipmakers report falling revenue as market braces for tough year

Made in Taiwan: Only TSMC seems to be dodging the downturn

The bad news from the semiconductor industry continues as more chip companies report falling demand, with only TSMC bucking the trend and delivering higher than expected earnings for the quarter just ended.

Rising inflation and talk of a possible global recession have contributed to a fall in demand for some tech products. This in turn means that while the semiconductor industry has enjoyed a surge in revenue from demand outstripping supply over the past 18 months as economies emerged from the pandemic, it is now entering a downturn.

Samsung is the latest to warn of reversing fortunes in its earnings guidance for the third quarter of 2022. The memory chip giant has forecast that its operating profit will be down to ₩10.8 trillion (c $7.6 billion), a decline of nearly 32 percent when compared with the same period last year. The picture will be clearer when the company releases its full earnings later this month.

AMD has also just warned investors that its revenue for the third quarter is likely to be $5.6 billion, a drop of 16 percent from the $6.7 billion figure it was previously predicting. As detailed in our earlier article, the company is blaming the weakening PC market, saying that economic conditions have led to lower than expected demand and a significant inventory correction across the PC supply chain.

Last week, US memory chipmaker Micron reported revenue of $6.64 billion for the quarter just ended (its fiscal Q4 2022), which was down from $8.64 billion in the previous quarter and $8.27 billion for the same period last year. The company also blamed "rapidly weakening consumer demand and significant customer inventory adjustments across all end markets."

Kioxia, formerly Toshiba Memory, also gave notice that it is cutting its wafer start production volume at its Japanese manufacturing plants by approximately 30 percent from this month in response to falling demand.

Taiwanese chip giant TSMC so far appears to be dodging the downturn, posting better than expected third quarter figures in its earnings guidance. It is likely to see revenue up 48 percent year-on-year to about TW$613 billion ($19.4 billion), according to Bloomberg, although the company is not due to post its official figures until next week.

The warning signs regarding the semiconductor industry have been apparent for many months now, with Gartner's vice president for semiconductors and electronics Richard Gordon telling The Register in April that the market was heading into to a down cycle that would probably start in the second half of this year.

"On the demand side the signs are not good from a macroeconomic perspective – consumer disposable income is going to get squeezed due to the rise in cost of living and increased taxation etc," Gordon said at the time.

He reiterated that forecast this week, saying: "Following high 20 percent plus growth in 2021, total semi growth in 2022 will be low single digit driven by a crash in memory pricing (DRAM and NAND) caused by weak end market demand in PCs and smartphones."

According to Gordon, non-memory chip markets are declining more slowly due to catch-up demand persisting in markets such as industrial and automotive, but he predicts that total 2023 semiconductor growth will be negative.

"We are already seeing pull-backs in announced Capex as semi companies (especially memory) try to throttle back output," he said. "This will slow the addition of new fab capacity as vendors try to align it to a recovery in the market in beginning in 2024 and accelerating in 2025."

Bloomberg has warned that the tech downturn may be deeper and longer-lasting than feared because factors such as export restrictions from the US government will limit sales in China. The effect could be a weakening of demand for chips from many vendors such as AMD and Nvidia.

This contradicts Micron's outlook, which said that it expects to see "bit demand rebound" in the second half of its fiscal 2023. Investment bank Morgan Stanley also projects a return to growth for the semiconductor industry by the second half of 2023.

Meanwhile, chipmakers continue to invest in new fabrication facilities and process nodes. Micron has announced long-term plans for a $100 billion memory chip megafab in New York State, while Samsung said it expects to have 2nm chips in mass production by 2025, and is planning for and 1.4nm chips by 2027. ®