The chip crunch of 2021 may have been frustrating for consumers and electronics manufacturers, but it was a boon for chipmakers, many of which reported record revenues for the year and shot up the Fortune 500 rankings. But the sector is now bracing for a reset, caused by a worsening economy, declining consumer demand, and continued disruption from China’s lockdowns.
Intel, one of the world’s leading chipmakers, has responded to global headwinds by joining a string of other tech companies in placing a freeze on new hires as it seeks ways to cut costs.
“Increased focus and prioritization in our spending will help us weather macroeconomic uncertainty, execute on our strategy, and meet our commitments to customers, shareholders, and employees,” Intel said in a statement provided to Fortune on Thursday, a day after Reuters reported a leaked internal memo announcing the hiring freeze at Intel.
According to the memo, Intel is placing a two-week hiring freeze on its client computing group, which creates PC chips for desktop and laptop computers. Client computing is Intel’s largest division by sales, generating just over 50% of the manufacturer’s revenue last quarter. In April, Intel issued weaker-than-expected profit guidance for the second quarter, citing reduced PC chip sales.
But Citi’s semiconductor analyst, Christopher Danely, predicts Intel will miss its weak second-quarter guidance, following negative comments Intel CFO David Zinsner made at a Bank of America conference on Tuesday.
“Weaker” macroeconomic conditions are “clearly going to impact” Intel’s earnings, Zinsner said, adding that “the circumstances at this point are much worse than what we had anticipated coming into the quarter.”
Zinsner pointed to several “headwinds” faced by the chipmaker. First, broad supply-chain disruption means Intel’s customers are still having difficulty acquiring matched sets, or the complete set of components needed to finish a device. Without a complete set, device manufacturers have to scale back on production, cutting orders from Intel even if the chipmaker has no supply issues.
Intel’s CFO also pointed to China’s prolonged COVID lockdowns, which have disrupted the country’s manufacturing by forcing factories to close for weeks at a time, creating more supply constraints. China’s output of chips declined by 12.1% in April compared to a year ago, with production falling to its lowest level since December 2020.
Zinsner also noted that customers, having stockpiled inventory in the first half of the year, are now reducing orders as demand hasn’t met expectations. Consumer demand for computers and other consumer electronics is falling as the pandemic eases and inflation eats into cost-of-living. In April, Danely noted that laptop shipments were below estimates for the fourth month in a row.
Intel’s shares have dropped 5.2% since Zinsner’s remarks Tuesday, but the chipmaker isn’t alone in facing a more challenging market for semiconductors. Analysts are worried that chipmakers may have overcompensated for supply shortages last year, leading to a “chip glut” of excess inventory.
Demand for graphics processors, produced by AMD and Nvidia, may also be declining amid the crypto crash, as those chipsets are often used in crypto mining. Shipments of graphics cards fell by 6.2% in Q1 2022, notes consulting firm Jon Peddie Research. AMD and Nvidia shares are down by 32% and 38% respectively since the beginning of 2022.
Even shares in chipmaking juggernaut TSMC have been hit in recent months, with its New York–listed stock down by 27.4% for the year.
