The Electronics Industry

[SalesServiceGuy]

Chipmakers see 'breathtaking' drop in demand as recession looms


After years of record capital spending, chipmakers are warning on a weekly basis that demand is sputtering. In the latest sign of trouble, Samsung Electronics Co. and Advanced Micro Devices Inc. reported disappointing results within hours of each other that widely missed projections.

Samsung -- the world’s largest memory chipmaker -- reported a 32 per cent dive in operating income, while PC-processor maker AMD said it will miss its earlier forecast by about US$1 billion. Analysts’ reactions ranged from “breathtaking” to “Uff-da!”
Those numbers followed grim comments from memory makers Micron Technologies Inc. and Kioxia Holdings Corp., which are slashing spending and output in a bid to stabilize plummeting prices. AMD shares fell in premarket trading, along with chipmakers including Nvidia Corp. and Intel Corp. Chip gear suppliers such as ASML Holding NV and PC makers including Lenovo Group Ltd. also dropped. Japan’s Disco Corp., whose equipment grinds, polishes and dices chips, lost the most in more than two years Friday.

Consumer electronics companies that had struggled with shortages during the pandemic are now facing a sudden falloff in demand, even while shipping and materials costs remain high. Recession fears are making cost-cuttingthe new norm across the tech industry, and businesses that hoarded chips for two years are now opting to cancel or postpone orders and tap inventory, just as new capacity goes online.

The semiconductor industry is also grappling with export restrictions from the U.S. government, which is ratcheting up pressure on its allies to prevent shipment of cutting-edge chips to a growing list of Chinese companies, as it seeks to contain the Asian country. That’s hampering business for chipmakers from AMD to Nvidia in the world’s biggest semiconductor market.
Supply and demand are not all that is behind the current downcycle, said Heo Pil-Seok, chief executive officer at Midas International Asset Management in Seoul. “The US government’s exports controls would further limit IT companies’ sales in China and a large chunk of demand for chips will be weakened. If AMD, Nvidia can’t sell their chips in China, memory makers’ earnings will deteriorate further.”

“It seems end demand has likely deteriorated markedly in recent weeks, and end customers appear to be aggressively draining inventory,” Bernstein’s Stacy Rasgon said. The cut in AMD’s client-revenue “is admittedly a bit breathtaking.”

The PC segment, which has for years been losing ground to smartphones, looks particularly vulnerable. But a serious recession would hammer demand even in areas that have remained solid, such as in cloud computing, automotives and factory automation.

“We would continue to stay away from PC-centric names, which within our coverage list include AMD, Intel, and Nvidia, due to a likely prolonged PC downturn into next year and continued weakness in consumer gaming,” Baird analysts Tristan Gerra and Tyler Bomba wrote in a note to clients.

Share prices dropped throughout the semiconductor supply chain, from materials makers like JSR Corp. to chip gear makers such as Advantest Corp. and Screen Holdings Co. Even silicon wafer makers such as Shin-Etsu Chemical Co. and Sumco Corp. fell.

The companies themselves are bracing for a prolonged downturn. Samsung’s chip business head, Kyung Kyehyun, said last month he doesn’t see the memory market rebounding throughout next year. Kyung told employees at an internal event that Samsung cut its guidance for chip sales in the second half of this year by 32 per cent compared to a forecast in April, according to the Korea Economic Daily.

Delivery times for key components and machinery sometimes exceeded one year during the pandemic, causing companies to stockpile a year’s worth of inventory, while chipmakers rushed to ramp up capacity. Now that lead times have dropped, companies are scrambling to reduce stockpiles.

“You build supply for demand that turns out not to be as real as you thought it was,” Rasgon said. “No party lasts forever.”

[SalesServiceGuy]

Global long term and spot rates for shipping containers (containing copiers) from China to US west coast ports are starting to fall dramatically from their record highs as port congestion starts to clear.

Pre-COVID it would cost on average $1,300 to $1,600 USD to ship a container from the coast of China to west coast US ports. At it's peak, the costs were in excess of $6,500 and have now fallen to under $3,500.00 and continue to fall.

Pre-COVID the majority of containers from Asia were shipped to US West coast ports but now slightly more containers are being shipped to East Coast ports (51%) at higher container rates but less port congestion resulting in faster deliveries.

The threat of West coast port strikes, rising diesel costs and a large exodus of qualified truck drivers remain major considerations to moving goods quickly and efficiently.

[SalesServiceGuy]

A combination of rising interest rates and higher dealer costs from copier OEMs are making it much more difficult to convince buyers to upgrade their copiers.

For many years the sales pitch was that we could reduce a business's costs by upgrading to new and better equipment at a lower cost making a compelling business case.

Now many sales reps are faced with trying to convince customers to upgrade to new equipment at a higher cost when these same customers are seeing their costs rise for almost everything else in the office.

The myth of how A4 copiers were going to displace many A3 copiers is ringing not quite true. Most A4 product require expensive components like fusers to replace when they fail prematurely and require whole assemblies to be replaced because there are no individual parts to purchase. Dealers who have lost significant money on servicing their A4 product are rethinking their marketing strategies.

COVID depleted the inventory of used quality copiers yet used copiers remain in high demand. Often sales reps can earn a much greater commission $ by selling used vs new equipment.

While inventory from many OEMs remain hard to get, a lot of sales reps convinced their customers to simply extend their leases by another year in the hopes that the supply situation would improve. A year has passed, the equipment is that much older and costs have increased.

Copier parts sales from OEMs are rising to keep old copiers in the field working and cpc rates are rising along with them. Generally, once a copier is older than five years a service provider is not bound by the original service contract that limited annual cpc rate increases from a predictable 3-10% to whatever the service provider wants to charge. Costly electronic components like boards and HDDs are being excluded from service contracts that are older than five years.

[allan]

At least my hobbyist electronic processors and raspberry-pi's will be back in stock at and affordable...
Wise men stocked up there offices with 8 series machine to the point where walking around became an issue.

[BillyCarpenter]

What? I'm shocked. Lockdowns, inflation and printing massive amounts of money can have a negative effect? Say it ain't so.

[rthonpm]

What? I'm shocked. Lockdowns, inflation and printing massive amounts of money can have a negative effect? Say it ain't so.

Lots of different issues globally at play here. For the US, we also have a logistics infrastructure that still seems to think that it's the 1960's.

Corporations have swallowed the Just-In-Time supply nonsense that MBA's have been recommending for years, which is great until one link in that system fails. Not to mention their purchasing and procurement requirements that make no sense outside of conforming to a company system from 30 years ago.


Even just the overall disposable society we've moved towards hasn't helped: it's made it easier to reduce quality and repairable merchandise. It's cheaper for a corporation to just accept the potential of a recall over the greater odds of consumers just replacing the product, even if they go to another provider. Make it last as long as the warranty and you're covered and you've made some C-suite exec his bonus for the quarter.

The chip demand was always going to spike and then decline as business patterns began to adjust and adapt. Major corporations do their refreshes in cycles and consumers are going longer and longer between replacing consumer electronics. Then again, what's new in a mature market?



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[BillyCarpenter]

Lots of different issues globally at play here. For the US, we also have a logistics infrastructure that still seems to think that it's the 1960's.

Corporations have swallowed the Just-In-Time supply nonsense that MBA's have been recommending for years, which is great until one link in that system fails. Not to mention their purchasing and procurement requirements that make no sense outside of conforming to a company system from 30 years ago.


Even just the overall disposable society we've moved towards hasn't helped: it's made it easier to reduce quality and repairable merchandise. It's cheaper for a corporation to just accept the potential of a recall over the greater odds of consumers just replacing the product, even if they go to another provider. Make it last as long as the warranty and you're covered and you've made some C-suite exec his bonus for the quarter.

The chip demand was always going to spike and then decline as business patterns began to adjust and adapt. Major corporations do their refreshes in cycles and consumers are going longer and longer between replacing consumer electronics. Then again, what's new in a mature market?



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Sure, there are many factors and you just named a few. However, inflation is the main one. And I was promised that it was only temporary and nothing to worry about. About 2 years have passed since the current administration made me that promise and they sat on their hands and did nothing.

That all changed over the last few months (they finally woke up) and they raised interest rates drastically. Some worry that they raised it too much and that it will further cripple the economy.

[BillyCarpenter]

One last thing concerning the "supply" chain. Depending on China is crazy. And we depend on them for a LOT. Including our pharmaceutical supply chain.

The problem is compounded by the fact that both parties have sold out to China.

[SalesServiceGuy]

In approx June 2022, the Chinese gov't began making a new demand on any copiers/ printers/toners/parts sold in China. They had to be both 100% designed and manufactured in China including accessories in a bid to dominate the global print industry.

Massive Chinese gov't contracts are designed to favor those OEMs who participate in this initiative.

Most A3 copiers tend to be designed in Japan with input from subsidiaries around the world and manufactured in China.

Some like Toshiba are not willing to give up control over the design of their copiers or give up their lower cost manufacturing facilities in other places like Vietnam and Cambodia.

Toshiba is actively reconsidering the entire manufacturing facilities and now manufactures copier mainframes in France for Europe.

[rthonpm]

Sure, there are many factors and you just named a few. However, inflation is the main one. And I was promised that it was only temporary and nothing to worry about. About 2 years have passed since the current administration made me that promise and they sat on their hands and did nothing.

That all changed over the last few months (they finally woke up) and they raised interest rates drastically. Some worry that they raised it too much and that it will further cripple the economy.

If inflation was limited to just the US I could see you having a stronger argument, but the same situation is playing out worldwide, and in many countries in Europe and Asia is considerably worse. The US has weathered the upswing in inflation considerably better than Europe: unemployment is still at historical lows and corporate profits are high. The main issue in this country is dated logistics and trying to get the crates from the ships to the trucks. Products are here, they're just sitting on the docks instead of distribution centres.

Quite simply, constrain supply everywhere with a higher demand than usual and all kinds of craziness ensues. The system of distributed manufacturing works until it doesn't and there seems to finally be a realisation that going cheap on the operations side doesn't always work. Undoing forty plus years of bad corporate decisions is going to take time.

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