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Weakening Memory Demand Signals Semiconductor Slowdown

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Weakening memory demand may be a signal that the party is over in the semiconductor industry, analysts predict.

Following the Covid outbreak more than two years ago, chip shortages allowed suppliers to raise prices, boost profits, and spend record amounts on capacity expansion. While chipmakers continue to post strong sales growth, some are warning of plummeting demand during the rest of this year.

Micron Technology, the world’s third largest memory supplier, forecast in June that its sales for the three months ending in August will drop by 17% from the previous quarter. Typically, sales in the second half of each year are strongest as electronics companies rev up for the year-end holiday season.

“It currently appears that Micron has given us an early warning that the third-quarter 2022 memory market will be extremely weak,” market researcher IC Insights reported.

IC Insights also noted declines in sales figures between May and June from leading chipmakers in Taiwan. Month-to-month figures are less significant than year-on-year comparisons, the latter of which filter out seasonal changes. Call the warning sign a blip on the radar at this point.

Top 10 Taiwanese semiconductor suppliers’ June/May 2022 sales change (Source: IC Insights)

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest foundry, is especially worth watching, according to IC Insights.  TSMC’s June 2022 sales fell by 5% from May 2022.  From 2016 through 2021, the company posted an average sales increase of 14% between May and June, with 2018 registering the only decline (-13%) during this period, according to IC Insights.

TSMC’s June 2022 sales rose 18.5% from its revenue in June 2021. That increase has slowed from the 39.6% gain between January and June sales this year compared with the same period in 2021.

Industry bellwether TSMC, which makes chips for companies ranging from Apple to Xilinx, will provide an outlook for the rest of the year when it reports its quarterly results on July 14.

Alarm Bells

IC Insights isn’t the only one sounding an alarm. TrendForce is also warning that DRAM prices will fall by as much as 10% during the third quarter of this year.

“Facing uncertain peak-season demand in the second half of 2022, some DRAM suppliers have begun effectively expressing clear intentions to cut prices, especially in the server field, where demand is relatively stable, in order to reduce inventory pressure,” TrendForce said in a July 4 report. This will cause third-quarter 2022 DRAM pricing to drop nearly 10% quarter-on-quarter, the report said.

Server DRAM inventory is approximately seven to eight weeks, and the consensus among buyers is that DRAM prices will continue to fall due to increased inventory pressure, according to TrendForce. As advanced manufacturing processes progress and demand for consumer products continues to weaken, server DRAM has become the only effective sales outlet, the report said. South Korean manufacturers have been the first to signal a quarterly pricing reduction, according to TrendForce.

Outside the growing server segment, signs of weakness in the smartphone and PC business emerged months ago.

Worldwide shipments of PCs declined 15.3% year-over-year to 71.3 million units in the second quarter of 2022, according to the International Data Corporation (IDC). It was the second consecutive quarter of lower shipments following two years of growth, IDC said.

The decline was worse than expected as supply and logistics further deteriorated due to Covid lockdowns in China and persistent macroeconomic headwinds, according to IDC.

Smartphone shipments will decline 3.5% to 1.31 billion units in 2022, according to IDC. After three consecutive quarters of decline and increasing challenges in both supply and demand, IDC cut its forecast for 2022 from the previous projection of 1.6% growth.

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