Semiconductor Industry Faces Prolonged Downturn as Recession Concerns Grow
The semiconductor industry is facing a dramatic slowdown, with major players such as Samsung Electronics and Advanced Micro Devices (AMD) reporting significant declines in demand. After years of record capital spending, chipmakers are now warning of a potential recession, with demand sputtering across key markets. Samsung, the world’s largest memory chip manufacturer, reported a 32% drop in operating income, while AMD announced that it would miss its earlier revenue forecast by about US$1 billion.
These results have sent shockwaves through the tech industry, with analysts describing the situation as “breathtaking” and “Uff-da!” This downturn follows similar warnings from other memory chipmakers, including Micron Technologies and Kioxia Holdings, which are cutting back on spending and production to manage falling prices. As a result, shares of AMD, along with other chip and PC manufacturers like Taiwan Semiconductor Manufacturing and Lenovo Group, have taken a hit.
Declining Demand and Geopolitical Pressures
Analysts attribute the downturn to a combination of weak consumer electronics demand, rising shipping and material costs, and the aftermath of pandemic-era chip hoarding. Businesses that stockpiled chips during the height of the pandemic are now cancelling or delaying orders as they tap into their existing inventory.
Moreover, the semiconductor industry is being further strained by US government export restrictions aimed at limiting the shipment of advanced chips to Chinese companies. These measures are impacting chipmakers such as AMD and Nvidia, as the world’s largest semiconductor market faces tighter controls.
A New Kind of Downturn
Unlike previous cycles, this downturn is also driven by geopolitical risks. Heo Pil-Seok, CEO of Midas International Asset Management in Seoul, noted that the US’s export controls are intensifying pressure on chipmakers, with the restrictions weakening demand from China—a major consumer of chips. He believes that if companies like AMD and Nvidia are unable to sell their products in China, the effects on memory chipmakers’ earnings will be significant.
Prolonged Downturn Expected
The companies themselves are bracing for a prolonged period of reduced demand. Kyung Kyehyun, head of Samsung’s chip business, has stated that he does not expect a rebound in the memory market next year. Samsung has already revised its guidance for chip sales, cutting its forecast for the second half of the year by 32% compared to its April estimate.
As Bernstein’s Stacy Rasgon put it, “No party lasts forever.” The semiconductor industry is cyclical, and while recent years saw extraordinary growth, that growth may have been based on inflated demand, which is now proving unsustainable.
