With hot inflation numbers putting a squeeze on spending, a number of chipmakers, including the likes of Micron and AMD, have warned that demand may be waning. This comes at a time when there has been a global shortage of semiconductors for two years, which has affected the production of everything from smartphones to cars.

Chip stocks fall

On Thursday, Micron Technology forecast that revenue for the second quarter of this year would be worse than expected. According to the memory chip maker, this was because of a weakening in demand in a short span of time. This resulted in chip stocks plunging globally when markets opened on Friday.

There was a decline in shares of STMicroelectronics, the Franco-Italian company, Dutch chip maker ASML, MediaTek and TSMC of Taiwan, and Infineon of Germany. As a matter of fact, these chip maker stocks were putting most of the pressure on the S&P 500 index for the day. There was a 3.5% decline in the Philadelphia Semiconductor Index, after it had already recorded a decline in the first half of the year of about 35%.

Problems for chip-makers

During the pandemic, people were working from home and this led to a surge in demand for personal computers (PCs) and smartphones. This resulted in most chip-makers becoming overwhelmed due to the massive number of orders. Due to the shortage that occurred, many companies, which included automakers, had to delay their shipments, reduce their production, and also paid high premiums for obtaining key chips.

Until recently, global executives had issued some serious warnings regarding supply chokepoints due to the COVID-19 lockdowns that had been imposed in China. However, consumers have now tightened their belts due to rising inflation, with demand also taking a hit because of the Chinese COVID-19 curbs. Therefore, there has been a sharp decline in the sales of PCs and smartphones.

Market analysts said that it would take at least one to two quarters for PC and smartphone customers to burn off the inventory they have before they look into rebuilding.

Slowdown expected

Last month, Advanced Micro Devices Inc. warned of a slowdown in sales of PCs this year. Meanwhile, Micron also disclosed that there was a 30% fall in its revenue from China in the second quarter because of the recent lockdowns imposed by Beijing.

Data from Gartner shows that there is an 18% drop expected in smartphone shipments to China, which is the biggest smartphone market in the world. In fact, there is a 7% drop expected in worldwide shipments because of the Russia-Ukraine conflict and supply-chain bottlenecks.

Nonetheless, executives of Micron stated that they were confident about future demand for chips and industry analysts also asserted that there was a demand for chips that are used in high-speed computing, 5G, and EVs.

On Friday, sources also disclosed that the largest contract chipmaker in the world, TSMC, has had client orders reduced for the rest of the year. The other companies also appear to be facing similar situations.