The downturn in the chip industry started in the summer months, as crypto crashes caused blockchain miners to flood the market with previously hard-to-find graphics cards.
Then, almost overnight, demand eased up and caused graphics hardware prices to drop by nearly half.
In August, Nvidia’s CEO Jensen Huang admitted that the company made too many graphics cards that now it has to sell them for less money. But Nvidia isn’t alone in this mess.
Just the previous year, the only story about chips was that manufacturers couldn’t make enough of them to satisfy the strong demand for consumer electronics, cars, and other products that need semiconductors.
But even as shortages resume for certain semiconductors, the story is evolving more nuanced, especially for giants like Samsung and AMD. They were flying high on earnings and profits in 2021 and into 2022.
As the need for GPUs, PCs and cloud servers falters, Samsung and AMD join Intel and Nvidia with warnings of a growing semiconductor industry sinkhole.
Now they are being bowled over by a tide that similarly swept up Nvidia and Intel this summer. As reported by Bloomberg, this week, Samsung is reporting a 32 percent sales guidance cut, while AMD warned investors it would miss its previous forecast by about $1 billion.
Slumping PC sales provide an obvious explanation for why processors from AMD and Intel are not in as high demand as they were early in the pandemic. Then, everyone simultaneously had an incentive to upgrade their laptops, gaming machines, and work-from-home setups, but sales have slowed.
One way manufacturers would like to turn that around, as Intel CEO Pat Gelsinger described on Decoder, is “to enable the PC ecosystem to have better products than what is done by the Mac. Period.” But that hasn’t happened yet, and for giants like Samsung, it doesn’t even start to address the slowdown in demand for cloud servers and different machines.
OEMs had amassed inventory in 2021 and the first half of 2022 — during deficits — panic buying / double-triple ordering, etc. They also suggested that these warnings from Samsung and AMD are due to the weak forecasts in smartphones, PCs, and consumer electronics, even though other areas like automotive are substantial comparatively.
Samsung’s memory and storage chip business made it the largest chipmaker over Intel in 2018, though the latter company primarily makes x86 processors. In July, Intel suffered upsets and reported a 22 percent decline in revenue driven by low PC sales and working losses to get its Arc GPUs out the door.
Demand for chips of all kinds peaked in 2022, and companies like Samsung had record high revenue in 2021 with a 26 percent growth in profits due to a higher market for consumer electronics like smartphones and TVs.
But now contract prices for DRAM chips dropped 15 percent and 28 percent for NAND flash chips and a TrendForce forecast that those declines will continue to decline until almost flattening by the end of 2023.
There’s also concern about how the Biden administration’s just-revealed chip export restrictions to China could impact the semiconductor industry. Gartner’s analysts tell The Verge that this will slow down Chinese companies’ progress and hurt their long-term goals of becoming self-sufficient technology leaders.
The new rules would need manufacturers like Intel and Micron to obtain a license to export semiconductors and chip-making equipment to Chinese companies as part of a grind reportedly intended to impair Beijing’s military and technological capabilities.