Monday, August 8, 2022

Chip Boom Loses Steam on Slowing PC Sales, Crypto Rout

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The pandemic-era boom in semiconductors that spurred a global shortage is showing its first signs of weakness, driven by a slump in personal-computer sales and a rout in cryptocurrency markets.

The frenzy to buy laptops and other gadgets early in the Covid-19 pandemic has vanished as inflation dissuades people from upgrading machines that they bought in the past couple of years amid the shift toward remote work and learning. The fading of the crypto boom has also put an end to early pandemic scenes of people camping outside…

The pandemic-era boom in semiconductors that spurred a global shortage is showing its first signs of weakness, driven by a slump in personal-computer sales and a rout in cryptocurrency markets.

The frenzy to buy laptops and other gadgets early in the Covid-19 pandemic has vanished as inflation dissuades people from upgrading machines that they bought in the past couple of years amid the shift toward remote work and learning. The fading of the crypto boom has also put an end to early pandemic scenes of people camping outside computer stores to buy chips for cryptocurrency mining and high-end videogaming.

Now, chip companies, including giants
Intel Corp.
and
Nvidia Corp.
, are warning of rockier months ahead after two years of surging demand across their product lineups, pointing to a chillier consumer climate.

The slowdown in crypto mining is affecting chip maker Nvidia, which is cutting back on hiring.
Photo: Andre Malerba/Bloomberg News

David Zinsner,
Intel’s chief financial officer, said in June that the outlook for the second half of this year had gotten “a lot noisier” over the previous month, and that the company would look to align spending and investments to that reality. Intel temporarily froze hiring in its PC-chip division in June, among other belt-tightening measures.

Memory maker Micron Technologies Inc. last week issued a muted sales outlook as Chief Executive

Sanjay Mehrotra
warned that “the industry demand environment has weakened,” with PC and smartphone sales declining. The company said it was cutting back on some spending plans to adjust to the new market dynamics.

Chip executives, computer retailers and distributors say the market malaise has gotten worse in recent months—more sluggish than many were expecting at the beginning of the year as U.S. inflation hit 8.6% in May, the highest in more than four decades, leading the Federal Reserve to raise interest rates.

“The up went way up, and the down went way down,” said Kent Tibbils, vice president of marketing at ASI Corp., a major electronics distributor based in California, pointing to a falloff in demand for computers around March. “Usually there’s more of a gradual line, but it’s been a little bit more volatile than what we might normally expect.”

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Nvidia said it is dialing back hiring as the chip maker braces for slowdowns in two of its key areas, crypto mining and videogames. The company’s chips are used for the heavy-duty computational work required to mine new cryptocurrency tokens, and they are prized by videogamers who bought its graphics cards during a pandemic-era surge in home-based entertainment. Both areas are weakening, and Nvidia’s stock fell 48% in the first half of the year.

Chester Yeung, an executive at California-based retailer Central Computers, said consumers endured about two years of waiting lists, raffles and quotas just to have the opportunity to buy Nvidia’s latest graphics hardware. Now, the retailer has well-stocked shelves, and the rationing his company introduced during the pandemic was dropped this year.

“You have crypto prices tanking but also tanking along with the stock market, which means less disposable income for a lot of people, because they saw their savings or 401(k)s taking a huge dive,” he said.

Personal computer shipments are expected to retreat by 8.2% this year to 321.2 million units, according to International Data Corp., which cut its forecast in June. Those numbers are a sharp reversal from the height of the pandemic, when shipments grew 13% in its first year and 15% in the second.

AMD’s Lisa Su expects computer demand to be roughly flat over the next few years.
Photo: Bridget Bennett/Bloomberg News

Advanced Micro Devices Inc.
Chief Executive

Lisa Su
said last month that the company already had taken a conservative view of the PC segment for this year and expects computer demand to be roughly flat over the next few years.

Computer-makers
HP Inc.
and

Dell Technologies Inc.
said they are seeing principally lower-end consumer PC demand softening, slightly offset by healthy sales to companies.

PC shipments have been hit by not just softening appetite for new devices, but also supply-chain snarls from Covid lockdowns in China, where many computers are assembled, and the fallout from Western sanctions on Russia after the country’s invasion of Ukraine.

Analysts have grown more pessimistic about chip companies’ sales prospects. In February, analysts estimated Intel would generate sales of around $18.4 billion in the second quarter, according to FactSet. Now the average estimate is for less than $18 billion, below what Intel has projected. Estimates for Nvidia’s sales have also decreased 4% over the period, and are in line with the company’s $8.1 billion sales guidance for the current quarter.

“Semi downturns happen every 3-4 years, and we could be due for another one,” Bank of America analysts said last week.

It isn’t just chip makers that are resetting their expectations.
Microsoft Corp.

lowered its earnings outlook in June, citing a stronger dollar that has dented the value of its sales in foreign countries, and the company has slowed hiring.

A display of Qualcomm 5G chips. The company said in June that supply and demand would come into better balance in the second half of the year.
Photo: Zhang Hengwei/China News Service/Getty Images

A potential silver lining for those customers who are still in shopping mode is that wait times for some semiconductors are starting to ease after swelling during the two-year-long chip drought. Chip lead times overall were at a near-record 27 weeks in May, according to Susquehanna Financial Group, but wait times for microcontrollers—ubiquitous chips that have been a bugbear for auto makers and others—shortened.

The pressure of chip demand may also ebb with smartphone sales weakening. IDC expects shipments of those devices to fall this year.

Akash Palkhiwala,
chief financial officer of San Diego-based
Qualcomm Inc.,
a leading maker of chips for smartphones, said in June that supply and demand would come into better balance in the second half of the year.

Even with some demand softness, none of the big companies is projecting an end to the semiconductor drought soon. Demand remains hot for chips used in the servers, the powerful computers used in data centers, said Ms. Su of AMD, helping offset some of the PC weakness.

Semiconductor manufacturers Samsung, Intel and Texas Instruments recently announced plans for new chip factories in the U.S. WSJ’s Rob Copeland visits Central Texas to learn why Samsung is moving to the region and what this type of reshoring could mean for the American economy. Photo Illustration: Adele Morgan.

The Wall Street Journal Interactive Edition

And shortages also could remain for older-style chips that have been at the heart of the two-year scramble among car makers, gadget producers and others to secure adequate supply. Chip executives say long-term shifts in the electronics industry, including the shift toward electric vehicles that require more chips, are one reason the shortage may not abate soon.

While companies brace for a choppier future, the overall chip market remains constrained. Chip factories globally were running near full capacity in the first quarter, according to
Gartner
statistics. World-wide, chip sales grew 12% year-over-year in April, according to World Semiconductor Trade Statistics figures, the latest data available.

Write to Asa Fitch at asa.fitch@wsj.com

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