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AMD, Nvidia, Intel: Things Aren't Looking Good for Semiconductors

The short-term outlook for semiconductor manufacturers is not very encouraging.
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The golden age of chip production appears to be fading, at least for now.

The just-completed second-quarter-earnings season confirms that the semiconductor makers are in for a tough time. 

AMD  (AMD) - Get Free Report, Nvidia  (NVDA) - Get Free Report, and Intel  (INTC) - Get Free Report, three of the biggest players in the sector, reported completely different performances. But even when the results were encouraging, as in the case of Advanced Micro Devices, they results came up far short of allaying investors' concerns. 

Advanced Micro Devices delivered 70% year-over-year revenue growth, to $6.6 billion, even as sales of personal computers slowed sharply. The company has benefited from strong demand from data centers.

But Micron  (MU) - Get Free Report and Qualcomm  (QCOM) - Get Free Report also failed to send the message that the economic slowdown -- and possibly a looming recession -- will not significantly cut the sector's momentum.

Switch to a 'Period of Weakness'

The chipmakers were supposed to see at least a decade of strong sales. That outlook has changed considerably. 

But research firm Gartner recently downgraded its forecasts for the sector, almost halving expected revenue growth in 2022.  

Global semiconductor revenue is now projected to grow 7.4% in 2022 to $639 billion. Year over year that percentage estimate is down from actual 2021 growth of 26.3%. And it's down from the forecast in the second quarter that for all of 2022, chip revenue would grow 13.6%.

And in 2023, Gartner warned, forget about growth. The Stamford, Conn., research firm expects a 2.5% drop in overall chipmaker revenue.

"Although chip shortages are abating, the global semiconductor market is entering a period of weakness, which will persist through 2023 when semiconductor revenue is projected to decline 2.5%,” said Richard Gordon, practice vice president at Gartner. 

"We are already seeing weakness in semiconductor end markets, especially those exposed to consumer spending. 

"Rising inflation, taxes and interest rates, together with higher energy and fuel costs, are putting pressure on consumer disposable income. This is affecting spending on electronic products such as PCs and smartphones.”

The sector has seen strong demand during the postpandemic recovery -- so much so that shortages for certain categories of chips persist, while surpluses have swamped other sectors. 

Contractions in the personal-computer and smartphone markets are expected in 2022 (by 9.5% and 7.1% respectively), according to Gartner, forcing Intel and AMD in particular to revise their forecasts downward.

If the demand for processors and DRAM memory declines, the chips intended for computer servers are on the rise (20% growth). 

Where chips for electric batteries are concerned, demand still exceeds supply. But Micron still has just revised its revenue target for the current quarter downward.

Nvidia Example

Nvidia, which pegs a good chunk of its business to the gaming, cryptocurrency and metaverse industries, demonstrates the semiconductor sector's difficulties.

Nvidia managed to record a 3% year-on-year increase in revenue in the second quarter to $6.7 billion, according to a news release

After a historical shortage of graphics cards, Nvidia now finds itself in the opposite situation. It has too many graphics-processing units, RTX 3000 graphics cards, left in stock. The surplus stems from the drop in demand from consumers and cryptocurrency miners in the past few months.

The company will cut the prices of those cards, hoping to sell them off before launching the next generation. That next generation of graphics cards, the RTX 4000s, promise to be twice as powerful as the current ones.

"Macroeconomic headwinds across the world drove a sudden slowdown in consumer demand," Chief Financial Officer Colette Kress told analysts on Aug. 24. 

"We implemented programs with our gaming-channel partners to adjust pricing in the channel and to price-position current high-end desktop GPUs as we prepare for a new architecture launch. As noted last quarter, we had expected cryptocurrency money to make a diminishing contribution to gaming demand."

Founder and Chief Executive Jensen Huang confirmed the tough time his company is going through: “We are navigating our supply-chain transitions in a challenging macro environment and we will get through this.