Big blow of stress among the giants of the electronic chip

Posted Nov 2, 2022, 3:12 PM

One by one, the world’s major producers of semiconductors, such as Samsung Electronics, SK Hynix or Kioxia, have revealed in recent days, when presenting their financial results, that their industry is entering a delicate phase, marked by a sharp drop in demand and serious disruptions linked to the Sino-American standoff.

After having benefited during the Covid-19 pandemic from a surge in orders for memory chips, microprocessors and other components used in smartphones, computers and servers mobilized for teleworking, Asian and American companies, which dominate this market, are facing a sudden drop in electronics sales.

Decline in smartphone sales

According to Counterpoint Research, smartphone sales fell 12% year-on-year in the July-September quarter to “fall” to 301 million units worldwide, the worst third quarter in the sector. since 2014. Over the same period, PC sales have fallen by 15%, calculated International Data Corporation, which does not anticipate a rapid rebound in demand. “The memory chip industry is facing an unprecedented deterioration in the market at a time when economic uncertainties are accumulating”, summarizes, in a press release, the management of the South Korean giant SK Hynix, which points to the decline of 20%, over one year, the price of its DRAM and NAND memory chips.

World number two in this market, behind Samsung Electronics, SK Hynix saw its sales plunge by 20%, quarter-on-quarter, over the period from July to September, when its operating profit contracted at the same time by 60%. “We are currently considering different scenarios but we now believe that we will have to reduce our investment program by a little more than 50%,” warned Noh Jong-won, the group’s marketing director.

These announcements echo the numerous formalized investment reductions in recent days by other major semiconductor producers. Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest foundry of all types of components, has announced that it will finally reduce its spending plan by more than 10% for the whole of 2022. The group which evoked investments of between 40 and 44 billion dollars over the year will ultimately only pay out 36 billion dollars to adjust its production capacities to the drop in demand. The American Micron Technology will reduce its investments by 30% in 2023.

American pressure

While Samsung, which has a much broader business portfolio, has not yet unveiled such a drastic plan, it has confirmed that the market is experiencing a sharp turnaround. In the third quarter, the profits generated by its semiconductor division were thus halved, compared to the same period in 2021. recovery for next year, “warned Kyung Kye-hyun, the boss of this division, in September.

Like other companies in the sector, the manager is also worried about the market disruptions caused by the new American regulations put in place to curb China. Washington has thus begun to ask American companies to obtain very rigorous export licenses before they can possibly ship to China advanced semiconductors that Chinese state companies do not yet know how to produce or point allowing them to be manufactured on site.

Automatically, these restrictions impact the Asian leaders in the sector who operate giant semiconductor production factories in China. For now, the US Department of Commerce has granted them a one-year exemption before applying its restrictions, but everyone will quickly have to question their ability to maintain a production base in China.

“Overseas memory chip makers, such as Samsung and SK Hynix, will have to weigh the reliability of these US waivers to determine if it still makes sense to continue investing in advanced production in China,” warn, in their latest report. note, Rhodium Group analysts. Very worried, SK Hynix said last week that it could be forced, in the worst case scenario, to sell its Chinese factories, where it now manufactures nearly half of its DRAM chips.

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