After booming demand during the pandemic and a rapid inventory build-up in 2022, Intel, Nvidia, SMIC, and TSMC face a sudden downturn, perplexing analysts
After dealing with booming demand and global shortages since the start of the pandemic, the semiconductor industry is facing a sudden downturn.
The puzzle for analysts is speed: an industry that spent two years unable to supply enough chips now faces swelling stockpiles within months of the build-up, with falling lead times already visible by year-end.
First-order effects
Intel, Nvidia, SMIC, and TSMC are absorbing the direct hit: inventories built during the shortage era now sit unsold as consumer demand cuts spending, pressuring revenue and utilization across all four.
Second-order effects
The demand drop collides with the manufacturing capacity added during the boom, forcing chipmakers to cut output and capex — a squeeze that later shows up as TSMC, Intel, and peers slowing their expansion plans in Japan and Malaysia on lackluster older-chip demand.
Third-order effects
If the cycle follows the pattern some analysts saw by November 2022 — a sharp downturn with a possible bottom near — the structural lesson is that pandemic-era double ordering and stockpiling amplify both directions of the cycle, leaving the industry to re-learn capacity discipline between shortage and glut.
The trend:Semiconductors are swinging from shortage to glut faster than ever, as pandemic-era stockpiling turns the classic chip cycle into sharper, shorter booms and busts.
Relevance of heterogeneity can't be understated. Semiconductor industry moving further into gluts but still not where shortages were most inflationary. How much did hot 2020 demand for electronics actually set off shortages elsewhere (vs other causes)? https://www.ft.com/... http…
Further fuel for my speculation that the CHIPS and Science Act won't do much to affect the supply of actual chips. Semis have always been a cyclical business. https://www.ft.com/...
TL;dr: Covid hoarding has accentuated the typical boom-bust chip cycle... and supply-chain issues still exist bc Covid still exists. US chipmakers hit by sudden downturn after pandemic boom https://www.ft.com/...
After Congress passed $52 billion CHIPS subsidy: -Micron, which had said it would invest $40b in the U.S. this decade, announced it will cut capital spending -Intel cut its capital spending plans by $4b, but predicts a “growing dividend” for shareholders https://www.ft.com/...
Sounds like the CHIPS Act is turning into a subsidy for semiconductor companies that are missing revenue targets and slashing budgets, rather than investing in new domestic fabs. Intel is still promising shareholders a “strong and growing dividend.” https://www.ft.com/...
I would argue that the focus on buybacks (the symptom) should be reallocated towards whether firms follow through on their capex commitments. Among the objectives of these subsidies is to help crowd-in and secure additional real fixed investment https://twitter.com/...