A handful of chipmakers, including Micron and AMD, reportedly have signalled falling demand as soaring inflation squeezes spending, even though it is easing a two-year global semiconductor shortage that has hit production of everything from cars to smartphones.

Reuters reported chip shares worldwide tumbled last Friday after memory chip maker Micron Technology forecast on Thursday much worse than expected revenue for the current quarter and said the market had “weakened considerably in a very short period of time”.

Shares in Taiwan’s TSMC and MediaTek, Dutch chip gear maker ASML, Franco-Italian STMicroelectronics and Germany’s Infineon all fell on Friday, the report said.

Reuters noted chipmakers were overwhelmed trying to meet big orders from makers of smartphones and personal computers (PCs) after demand surged from people working from home during the pandemic.

The resulting shortage led companies, including automakers, to slash production, delay shipments and pay steep premiums for key chips. Recent COVID-19 lockdowns in China had global executives issuing grave warnings about supply chokepoints until recently.

However, soaring inflation across the world has resulted in consumers tightening belts, with China curbs also hitting demand. As a result, sales of smartphones and PCs have declined sharply, Reuters said.

“We believe it will take one-two quarters for the smartphone and PC customers to burn off the excess inventory before starting a rebuild,” Needham analysts wrote in a note cited by Reuters, after Micron’s results.

Advanced Micro Devices (AMD) flagged last month a slowdown in PC sales this year while Micron said Beijing’s recent lockdowns caused a 30% drop in its China revenue in the current quarter.

Industry-wide shipments of smartphones to China – the world’s biggest market for those – were expected to shrink by 18% this year Reuters said, citing Gartner. It expects worldwide shipments to drop 7% due to supply chain issues and the Russia-Ukraine war.

But Micron executives said they were confident about demand for their chips in the long term, and industry analysts said there was still a lot of demand for chips used in EVs, 5G and high-speed computing, the report noted.

Shift coming?

TSMC, the world’s largest contract chipmaker, has seen its major clients cut chip orders for the rest of 2022, Reuters said Taiwanese daily Digitimes had reported on Friday, citing industry sources. TSMC declined to comment.

Top memory chip maker Samsung Electronics, in an attempt to slow an inventory glut, temporarily halted new procurement orders and asked some suppliers to delay or cut shipments of components for several weeks, Nikkei said last month, according to Reuters.

“I think the extent of the shift has definitely been bigger than anyone was anticipating in the ecosystem,” Micron’s chief business officer, Sumit Sadana, reportedly said on Thursday.

Tesla, which uses hundreds of chips in its electric cars, has shuttered a California office and laid off about 200 workers. CEO Elon Musk has previously said he had a “super bad” feeling about the economy and that the company needed to cut salaried staff by about 10%, Reuters noted.

“We expect a better supply of semiconductors in the second half of the year,” Volkswagen AG chief financial officer Arno Antlitz said last Wednesday at the Reuters Automotive Europe conference. Demand for new vehicles may come down, “but our supply will go up.”

General Motors was not cutting orders for chips, a spokesman told Reuters by email last Friday.