Micron Technology Inc, a major vendor of memory chips for personal computers (PCs) and smartphones, said on June 30, 2022, that it expects smartphone sales to be substantially lower than previously expected for the rest of 2022 owing to a reduction in demand from consumers.
Tough Times Ahead for Micron?
Micron closed June 2022 with a negative sentiment, stating that it saw a “significant reduction” in demand at the close of the quarter ended June 2, 2022. The company said that it expects $7.2 billion in revenue for the fourth quarter ending in August 2022. The memory chipmaker attributed the reduction in demand from PC and smartphone markets as the major reason for the grim outlook. The company now expects both markets to register lower sales for 2022 contrary to the previous projections for PC sales to be almost similar to that of 2021 and smartphone sales to increase in the mid-single-digit percentage range.
The Chipmakers’ Jeopardy
Chip stocks were the biggest drag on the S&P 500 on July 1, 2022. The Philadelphia Semiconductor Sector index was down 3.5%, after sliding 35% in the first half of 2022. Chipmakers were overwhelmed trying to meet huge orders from makers of PCs after demand increased from people working from home during the pandemic. The resulting shortage forced companies, including automakers, to slash production, delay shipments, and pay steep premiums for major chips. Recent COVID-19 lockdowns in China prompted global executives to issue grave warnings about supply chokepoints until recently.
Imminent Spillover to Consumer Tech Industry
While the growing use of cloud services keeps the demand for data center chips buoyant, PCs and smartphones are two of the largest end markets for the chip industry. Soaring inflation globally resulted in consumers tightening their belts, with curbs in China also affecting the demand. As a result, sales of smartphones and PCs declined sharply. To what extent the impact will spill over to the vertical industries remains to be seen.
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