Chipmakers Post Weak Results, Reduce Spending Amid Recession Fears

A Nvidia logo is seen on the company's building at an industry park in Tianjin, China, on Feb. 7, 2019. (VCG/VCG via Getty Images)

Multiple chip manufacturers are posting disappointing financial results and cutting down on spending—developments that are negatively affecting the share prices of these firms.

AMD, for example, recently announced its preliminary third-quarter sales, missing projections by more than $1 billion. The third-quarter revenue is expected to be $5.6 billion, below the company’s forecast of $6.7 billion. Samsung, the largest memory chipmaker in the world, has reported a 32 percent fall in operating income. Nvidia, the biggest graphic processing unit manufacturer, announced a 44 percent decline in demand in the last quarter. In July, Intel reported a $2.6 billion loss in revenue.

Memory chipmakers like Kioxia Holdings Corp. and Micron Technologies Inc. are scaling down spending as well as output to stabilize falling prices. Micron warned last week about tougher times ahead, announcing a reduction of more than 30 percent in its capital expenditure investments next year.

“It seems end demand has likely deteriorated markedly in recent weeks, and end customers appear to be aggressively draining inventory,” Stacy Rasgon, a senior analyst at private wealth management firm Bernstein, said to Bloomberg. The decline in AMD’s client-revenue “is admittedly a bit breathtaking.”

The dismal performance and spending restrictions come as fears of the global economy slipping into a recession are rising.

An economic downturn can negatively affect demand for electronic items like personal computers (PCs), mobile phones, and tablets, as well as services like cloud computing, thereby affecting chip sales.

For now, AMD shares are down 57.82 percent year to date, as of Oct. 7. Intel shares have declined by 49.65 percent, while Nvidia shares are down by 58.21 percent. The weak financial numbers will likely add further pressure on the stock prices of these companies.

In a note to clients, Baird analysts Tristan Gerra and Tyler Bomba said that they continue to stay away from PC-centric stocks like AMD, Nvidia, and Intel due to “continued weakness in consumer gaming” and a potentially prolonged PC downturn into 2023, according to Bloomberg.

Future Demand

BCA Research is expecting semiconductor stocks to bottom out by late 2022 or early 2023. The firm believes that the surge in demand for devices like smartphones, PCs, and game consoles seen during the 2020–21 lockdowns has run its course. As a result, it is expected that demand in these sectors will sag in the next six months.

Around 30 percent of global semiconductor sales is accounted for by industrial electronics, automobiles, and servers. Though BCA Research estimates these sectors to register single-digit growths, it does not expect such growth to offset the demand lost in the consumer electronics goods sector.

Malcolm Penn, CEO of Future Horizons, is expecting the semiconductor sector to grow by single digits in 2022, but fall by double digits in 2023.

“For the most part, the industry is in hopeful denial,” Penn said, according to Electronics Weekly. “If we had a soft landing, it would be for the first time in the 70-year history of the semiconductor industry.”

Consulting firm Gartner is projecting global semiconductor revenue to grow only by 7.6 percent this year, which is a big downturn when compared to the 26.3 percent growth last year.