WEBVTT - Ian King on Chipmakers (Audio)

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<v Speaker 1>So chip makers bracing for a particularly severe shift in

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<v Speaker 1>the coming months, a record setting a sales surges threatening

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<v Speaker 1>to give away to the worst decline in a decade

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<v Speaker 1>or more. Joining us now to unpack this a little more,

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<v Speaker 1>Ian King, Bloomberg News u S Semiconductor reporter, Ian give

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<v Speaker 1>us a sense of the demand supply picture at the moment. Well,

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<v Speaker 1>what we've heard from a number of companies, Paul Is,

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<v Speaker 1>has been pretty stark. We've had Intel, we've had in Vineer,

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<v Speaker 1>we've had Micron and my brothers saying the demand is

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<v Speaker 1>falling off really quickly. They've been forced to pre announce

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<v Speaker 1>they've cut multiple billions off revenue forecasts, and most of

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<v Speaker 1>that so far has been concentrated in the sort of

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<v Speaker 1>computer related products. But you know, also there's concern about

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<v Speaker 1>what's going on in smartphones. And then Micron sort of

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<v Speaker 1>made a little bit worse by saying, oh, it's not

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<v Speaker 1>just this area, it's also spreading into data center another

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<v Speaker 1>another parts of the economy feast or famine. Right, it

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<v Speaker 1>was only a couple of months back that we were

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<v Speaker 1>pulling our hair out because we couldn't get our hands

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<v Speaker 1>on computer chips. Now there seems to be an abundance,

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<v Speaker 1>or so it would seem. Is this typical of the industry,

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<v Speaker 1>This kind of boom bust cycling in is unfortunately absolutely typical,

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<v Speaker 1>and we're you'll remember all of the industry executives that

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<v Speaker 1>told us, I don't know this time was different, and

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<v Speaker 1>but unfortunately that's not the case. I mean, we'll forgot

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<v Speaker 1>the two thousand and nineteen is actually a down here

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<v Speaker 1>for the industry. And then we've had this tremendous um

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<v Speaker 1>growth over the last couple of years, which some people,

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<v Speaker 1>I think the more cynical ones to say maybe a

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<v Speaker 1>lot of this is just kind of panic buying. Maybe

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<v Speaker 1>we're we're over expending ourselves. Maybe a lot of these

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<v Speaker 1>chips are just ending up in warehouses, and it's sort

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<v Speaker 1>of just in case frenzy um. And right now, at

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<v Speaker 1>least in some areas, it's looking like those that were

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<v Speaker 1>taking that that sort of dim view of things that

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<v Speaker 1>were right. How valuable is it to take a much

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<v Speaker 1>longer term view here? Though demands in the long term

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<v Speaker 1>is only ever going to increase. Should we look past

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<v Speaker 1>these cycles, or considering how expensive these plants are and

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<v Speaker 1>how long they take to bring them online, and how

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<v Speaker 1>rapidly they become obsolete. Is that sort of viewpoint not useful?

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<v Speaker 1>I mean, there are there are a couple of ways

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<v Speaker 1>to look at it. I think you're right. You know,

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<v Speaker 1>the industry has only ever grown when measures over an

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<v Speaker 1>extended period. But the vicious ups and downs that we

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<v Speaker 1>see in the meantime cause casualties, and those casualties are

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<v Speaker 1>companies and they are stocks. You know, companies that were

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<v Speaker 1>once industry leaders, that once did really well. A few

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<v Speaker 1>time it wrong. If you bring a plant in at

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<v Speaker 1>the wrong time, you're in big trouble. And that really

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<v Speaker 1>hasn't changed. And that explains why there's only really three

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<v Speaker 1>companies that are on the absolute leading edge now, and

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<v Speaker 1>one of those, which is Intel, is struggling. Is it

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<v Speaker 1>fair to say that there really has been I don't

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<v Speaker 1>want to say a lack of innovation, but we haven't

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<v Speaker 1>had a meaningful analyst for an upgrade cycle. Evs are

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<v Speaker 1>out there. We know that the technology is pretty much

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<v Speaker 1>in place. I think the same could be said for

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<v Speaker 1>the five G infrastructure smartphones. You reference the fact that

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<v Speaker 1>some people are saying the market is saturated earlier, right,

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<v Speaker 1>and I'm wondering whether we just what we need is

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<v Speaker 1>a new form of technology to drive a little bit

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<v Speaker 1>more tech innovation as it relates to computer chips. Yeah,

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<v Speaker 1>I mean, that's definitely representative of the one viewpoint, and

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<v Speaker 1>in a slightly suspicious viewpoint. The flip side of that

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<v Speaker 1>is that the industry is arguing, Look, chips are being

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<v Speaker 1>and are getting into more things than they've ever been

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<v Speaker 1>in one not just dependent on smartphones and PCs. Look

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<v Speaker 1>at these giant data centers are part of everyday life.

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<v Speaker 1>Your washing machine now has more brains than your PC

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<v Speaker 1>had twenty years ago kind of thing. And you know

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<v Speaker 1>that that semi conductors are utterly pervasive, is the argument.

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<v Speaker 1>And that may be true and is certainly more true

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<v Speaker 1>than it used to be. But whether that amounts to

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<v Speaker 1>linear up into the right demand is is obviously another question,

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<v Speaker 1>and we're seeing evidence, at least in the short term

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<v Speaker 1>that that is not the case, and that's what causing

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<v Speaker 1>the situation we're in. Now. What are the implications for

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<v Speaker 1>the fifty two billion dollar Chips and Science Act that

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<v Speaker 1>just got signed into law in the United States. Does

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<v Speaker 1>it look like a waste of money and a potential

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<v Speaker 1>political football now or was it a prudent investment for

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<v Speaker 1>the future as supply chains, but are so uncertain. Again,

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<v Speaker 1>you know, there are no shortage of opinions on this,

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<v Speaker 1>and they're all quite divergent. I think the concerned, the

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<v Speaker 1>most fundamental amount of level of concern is that, look,

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<v Speaker 1>the industry has has been you know, ups and downs

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<v Speaker 1>aside pretty much fine tuned towards efficiency. Everything is because

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<v Speaker 1>it's so expensive, because it is so brutal. Everything is

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<v Speaker 1>geared towards making as not have these giant gluts, or

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<v Speaker 1>that the gluts are nowhere near as bad as they

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<v Speaker 1>used to be be because we need to be more efficient.

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<v Speaker 1>If you throw in free money and forced geographical diversity

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<v Speaker 1>just for the kind of sake of it, and this

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<v Speaker 1>kind of just in case mentality, then you're going to

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<v Speaker 1>have perhaps worse gloats is one of these arguments, so

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<v Speaker 1>that maybe in a couple of years time, when a

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<v Speaker 1>lot of these factories come online, then look out, if

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<v Speaker 1>we don't have really really good demand, then we're going

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<v Speaker 1>to have yet another DWANTA in what do we know

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<v Speaker 1>about input cost? I'm thinking either of silicon which is

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<v Speaker 1>used in the manufacturing of the wafers, the neon gas

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<v Speaker 1>that is used to etch some of those wafers. I mean,

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<v Speaker 1>our companies dealing We talk a lot on this program

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<v Speaker 1>about rising inflation. Are they dealing with inflated input cost Yeah,

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<v Speaker 1>I mean, infut costs are definitely a problem, but I mean,

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<v Speaker 1>arguably they're one of the biggest problems that they've had

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<v Speaker 1>is shortage of chips themselves, because you know, the machinery,

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<v Speaker 1>which is really the most expensive part of this. You're

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<v Speaker 1>looking at some individual machines that costs as much as

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<v Speaker 1>two hundred million dollars in these factories. There's been a

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<v Speaker 1>shortage of those, which is because guess what, I haven't

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<v Speaker 1>been enough of the right type of chips to make

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<v Speaker 1>enough of them. So that's been the biggest sort of

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<v Speaker 1>inflated everything that's been going on for the chipmakers themselves

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<v Speaker 1>is the short to do chips, which is a pretty

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<v Speaker 1>vicious irony. Right, even we've got about a minute lift,

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<v Speaker 1>to what degree are we seeing the supply chain getting duplicated? Now?

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<v Speaker 1>We haven't seen it so far, but we are seeing

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<v Speaker 1>plants being created in Arizona, in Ohio in the United

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<v Speaker 1>States and also planned in Europe. Um you know that

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<v Speaker 1>those plants are at very early stages. At this point,

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<v Speaker 1>they will be essentially duplicate production facilities if the demand

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<v Speaker 1>isn't there to meet them. But if history is a guide,

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<v Speaker 1>the shells the actual buildings that were built, and they

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<v Speaker 1>won't be equipped if there isn't the demand for them.

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<v Speaker 1>So you know, we've got to see how that comes

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<v Speaker 1>out yet. Ian, good stuff. Always a pleasure. Thanks for

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<v Speaker 1>making time to chat with us. Ian King is semiconductor reporter.

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<v Speaker 1>He covers the industry from our studios and bureau in

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<v Speaker 1>San Francisco.