It's a bad dream that slowly turned into a nightmare. And this nightmare doesn't seem to want to end.
The year 2022 has been a painful journey for semiconductor manufacturers.
Following the example of Advanced Micro Devices (AMD), Nvidia (NVDA) and Intel (INTC), which are the three main players in the sector, 2022 is a year to forget .Their valuations are in recession.
AMD currently has a market value of $94.4 billion, which is a decrease of at least $83 billion compared to December 31, 2021. The company's stock price has fallen 59.4% during this period.
Nvidia, which was once in the Top 10 of the most valuable companies in the world was ejected from this club. The chipmaker ranks now 21st, as its market capitalization has shrunk by $431 billion. Indeed, at the start of 2022, the Nvidia's market value was approximately $732 billion. It is now only $301 billion. It's a disaster for the shareholders of the group.
$725 Billion Lost
As for Intel, the group of microprocessors has seen its market value melt from $206.3 billion in January to $105.6 billion at last check. Intel shares fell 49% during this period.
Micron Technology's (MU) valuation fell $44 billion in just over nine months to $58.4 billion. The company's stock fell for its part by 43%.
Finally, Qualcomm (QCOM) posted a market value of $135.8 billion, down more than $66 billion since January. The stock price fell 33%.
In all, the semiconductor manufacturers whose chips power almost all our electronic devices, our computers, most vehicles, the gigantic data centers of companies, have lost more than $725 billion in market value combined since January.
And this stock market bloodbath will continue if we are to believe what AMD just said.
The group published preliminary results on Oct. 7 for the quarter that just ended. Revenue is expected to be $5.6 billion, significantly lower than the original forecast of $6.7 billion "plus or minus $200 million," the firm said in a press release.
Admittedly, this would be a 29% increase in revenue compared to the third quarter of 2021, but AMD had previously said that it anticipated a surge in revenue of around 55%.
"Preliminary results reflect lower than expected client segment revenue, resulting from reduced processor shipments due to a weaker than expected PC market and significant inventory correction actions across the PC supply chain," AMD said.
Basically, demand for PCs has slowed sharply, which is therefore affecting microprocessor manufacturers like AMD. It also seems to suggest that PC manufacturers are finding themselves with large inventories.
AMD is also making a little less money on its products as margins have been squeezed. Margin before interest, tax, expenses and other incomes, or non-GAAP, is expected to be approximately 50%. The group had hoped it would be 54%.
Politics
The company explained that this disappointing figure is due to the fact that the group had to adjust its prices in the face of a drop in demand for processors, and because it tried to liquidate its inventories in the graphics business in particular.
"The PC market weakened significantly in the quarter,” said AMD Chair and CEO Dr. Lisa Su. "While our product portfolio remains very strong, macroeconomic conditions drove lower than expected PC demand and a significant inventory correction across the PC supply chain."
Semiconductor manufacturers are impacted, like the rest of the technology groups, by fears of recession which are discouraging businesses and consumers from spending. This is the result of aggressive interest rate hikes by the Federal Reserve to quell inflation, which is at its highest in over 40 years.
The sector is also suffering from the war for control of technology between the United States and China. The Biden administration has just issued new directives aimed at drying up Beijing's supply of microchips used in advanced computing and military applications.
The Department of Commerce has indeed published two new rules that limit American manufacturers from selling their chips to Chinese companies on a blacklist.
"BIS [Bureau of Industry and Security] is expanding controls on transactions involving items for supercomputer and semiconductor manufacturing end uses, for example, this rule expands the scope of foreign-produced items subject to license requirements for twenty-eight existing entities on the Entity List that are located in China," the Biden administration said.
