Just don’t expect foundry spending to stop anytime soon
Analysis The semiconductor gold rush is all but over, and we’ve had our fill. Or so the past month of dismal earnings might have you believe.
Electronics giant Samsung saw its profits contract 69 percent during the fourth quarter, while revenues slumped 8 percent overall. South Korean memory manufacturer SK Hynix, meanwhile, followed a few days later with an equally bleak report. Both companies told a story of macroeconomic forces that were suppressing consumer spending and driving DRAM and NAND flash inventories to unprecedented levels.
Put simply, where there was once a chip shortage there is now a glut. Well, of memory anyway — more on that later.
Intel, AMD, and Qualcomm, whose chips depend on DRAM and NAND flash and are thus inexorably intertwined, saw declines across key markets including PCs, smartphones, servers, and game consoles. If customers aren’t buying memory, it makes sense they wouldn’t be buying PCs and servers to put it in.
While the rapid deterioration of the semiconductor market may have come as a surprise to some, the writing has been on the wall for months.
Micron was among the first semis to succumb to market forces. After riding strong demand for months and promising tens of billions in new fabs, the company decimated its workforce, laying off 4,800 after its Q1, 2023 earnings tumbled 88 percent from the year prior on a nearly $200 million loss.
But even this wasn’t the first sign that the pandemic bubble had burst. More than six months prior, the industry watchers at TrendForce offered a stark outlook for the memory market, warning of growing inventories of yet unsold product. The memory vendors were headed for economic turmoil long before this week.
The semiconductor industry has, for the past three years, been caught in a perfect storm that has fueled steady demand.
In the wake of the COVID-19 outbreak, an entire remote-working economy was born over the course of a few weeks. Every tech and software company worth its salt rushed to capitalize on the shift out of the office.
Security vendors rushed products tailored to home offices out the door; notebook vendors crammed higher resolution cameras and microphones into their wares; and software vendors like Teams and Zoom scrambled to keep their services online. Whether directly or indirectly, all of these dynamics fueled semiconductor demand in one capacity or another.
Before long, existing inventories emptied, and with factories closed due to COVID-19 lockdowns, it seemed everything was in short supply. Within a year, the semiconductor supply chain was stretched beyond its limits, and we were in the full grip of the chip shortage.
