what about the chip makers?

Chipmaker Samsung Electronics’ profits plummeted amid economic challenges posed by the global economic situation and a sharp drop in demand for semiconductors and smartphones, the Korean maker’s core businesses.

This Tuesday advertisement that its operating profit in the last quarter was 3,500 million dollars, a fall of 69% with respect to the same period of the previous year. It is the company’s worst quarterly result since 2014, when it began expanding its chipmaking business for its own products and for other manufacturers, such as Apple.

From Samsung they point out not only the “economic recession” globally, but also the drop in prices and the inventory readjustments of their customers. Especially in their business selling memory chips. That is, fewer phones are sold not only to the semiconductor industry. Also to all those who depend on it. And vice versa.

Such is the importance of technology in Korea that its economy has decreased by 0.4%. Mainly due to the significant reduction in semiconductor exports, which is one of the country’s main assets. The stock fell 3.6%, despite more shareholder headaches ahead.

hold on, curves are coming

The difficulties have just begun. It’s a domino effect. The economic situation makes both phone assemblers and consumers especially cautious when it comes to launching new products, getting more stock, or giving one as a gift for Christmas. Inventories are full, says Liz Lee, research director at Counterpoint Research. Especially after the semiconductor crisis a few months ago. But the demand now is not so wide, so the price falls and the profit too.

It should be noted that, specifically, the profits of its chip division fell by 97% and that of telephony by 36%. And not only Samsung is with the noose around the neck. The income of the American Intel fell by 32% this last quarter, and during the year they lost 664 million. Low figures compared to the profits of 4,620 million achieved in the same period of the previous year. The company warned shareholders that the situation could worsen. In fact, he predicted more losses and stated that they could not provide forecasts due to the difficult economic situation.

The hiring of new employees by Qualcomm, another chipmaker, was halted after its latest quarterly results, in which its stock fell almost 8%. All despite the fact that his income and profits had not been so affected by the situation.

However, Qualcomm announced a readjustment of its forecast, announcing losses due to the rapid decline in demand and the already achieved normality in the production lines. Something that has been a headache for all manufacturers of telephones, cars, etc. in China. Even Apple has had serious problems making enough units.

Taiwan’s TSMC, warned at the same time that its income for the first quarter of the year will fall by up to 5% and that it will cut annual investment since its main supplier, Apple, anticipates lower demand.

Chip market in 2022: from lack of inventory to lack of demand

Less than a year ago, the World Economic Forum met I was asking how the chip industry could cope with increasing demand when production was so constrained. Now the problem is not production, because inventories are full, but the drop in demand.

Interestingly, the chips that are still lacking in many industries are the low-cost chips that use old technologies, but are still vitally important in automotive and industrial equipment manufacturing. The 60% of these markets depend on mixed chips that treat digital and analog signals as microcontrollers. But the big manufacturers want to bet on filling inventories with chips for the future using their most advanced techniques. The situation creates two simultaneous bottlenecks: a lack of demand for the latest generation semiconductors and a lack of production of old but still necessary chips.

“Citing low demand will be the keynote of 2023,” analyst Ben Bajarin said on Twitter.

Despite all this, Samsung plans to “strengthen its leadership” in the smartphone market with the launch of the Galaxy S23 against Apple and Chinese manufacturers. Although he anticipates a drop in demand for it, he predicts that the market will be “relatively stable” throughout 2023.

Some analysts see Samsung’s move as a possible bet to increase its market share in such a difficult situation. Something that possibly leads to losses to obtain coveted fruits in the future. Especially when the crises suffered by all markets worldwide are resolved.

Millions of factories and businesses depend on these manufacturers, but not as many depend on social networks, subscription services or computer programs. In January alone, Microsoft, Google, IBM, Amazon, Spotify and Salesforce announced big cuts in their workforces.

View Hide summary