Analysis: the ten leading chip companies cut their fiscal 2024 capex by a combined $9.5B from initial plans due to a weakening demand for smartphones and EVs
Nikkei Asia :
Context & Ripple Effects
The spending reset fits a broader downturn in non-AI semiconductor markets: TSMC had already reported a quarterly decline as non-AI chip sales lagged, while major chip-equipment vendors faced an expected sales pullback amid weak memory demand. non-AI chip sales were already lagging and equipment demand was weakening.
The cut matters because capital investment in fabs and chip production tools is committed well ahead of end-market demand. Later coverage of power-chip makers cutting jobs and spending amid excess capacity underscores how weak EV demand can extend from chip buyers to producers. Power-chip suppliers later pared jobs and spending
First-order effects
- The ten leading chip companies will deploy $9.5B less than initially planned on fiscal-2024 capacity and production investment, directly reducing near-term expansion tied to smartphone and EV demand.
- Chip-equipment and other capital-goods suppliers face a softer order environment as customers defer or trim planned spending.
Second-order effects
- Equipment makers may need to adjust production, inventories and guidance if cutbacks spread beyond the ten companies, echoing the earlier downturn in tool demand. Earlier equipment-sales expectations had already weakened.
- Power-semiconductor suppliers exposed to EV demand are likely to prioritize utilization and cost control over new capacity, reinforcing the excess-capacity pressures reported later. EV-linked power-chip makers subsequently cut spending.
Third-order effects
- If end-market weakness persists, semiconductor investment could become more segmented: capacity for mature smartphone, EV and other non-AI chips would be restrained while demand-supported segments attract capital.
- The episode reinforces the semiconductor capacity-lag dynamic, in which investment plans react after demand shifts and can prolong supply-demand imbalances.
The trend: The industry is moving toward a more selective semiconductor capital cycle, with investment increasingly determined by end-market demand rather than broad-based capacity expansion.