Speaker 1: So chip makers bracing for a particularly severe shift in
Speaker 1: the coming months, a record setting a sales surges threatening
Speaker 1: to give away to the worst decline in a decade
Speaker 1: or more. Joining us now to unpack this a little more,
Speaker 1: Ian King, Bloomberg News u S Semiconductor reporter, Ian give
Speaker 1: us a sense of the demand supply picture at the moment. Well,
Speaker 1: what we've heard from a number of companies, Paul Is,
Speaker 1: has been pretty stark. We've had Intel, we've had in Vineer,
Speaker 1: we've had Micron and my brothers saying the demand is
Speaker 1: falling off really quickly. They've been forced to pre announce
Speaker 1: they've cut multiple billions off revenue forecasts, and most of
Speaker 1: that so far has been concentrated in the sort of
Speaker 1: computer related products. But you know, also there's concern about
Speaker 1: what's going on in smartphones. And then Micron sort of
Speaker 1: made a little bit worse by saying, oh, it's not
Speaker 1: just this area, it's also spreading into data center another
Speaker 1: another parts of the economy feast or famine. Right, it
Speaker 1: was only a couple of months back that we were
Speaker 1: pulling our hair out because we couldn't get our hands
Speaker 1: on computer chips. Now there seems to be an abundance,
Speaker 1: or so it would seem. Is this typical of the industry,
Speaker 1: This kind of boom bust cycling in is unfortunately absolutely typical,
Speaker 1: and we're you'll remember all of the industry executives that
Speaker 1: told us, I don't know this time was different, and
Speaker 1: but unfortunately that's not the case. I mean, we'll forgot
Speaker 1: the two thousand and nineteen is actually a down here
Speaker 1: for the industry. And then we've had this tremendous um
Speaker 1: growth over the last couple of years, which some people,
Speaker 1: I think the more cynical ones to say maybe a
Speaker 1: lot of this is just kind of panic buying. Maybe
Speaker 1: we're we're over expending ourselves. Maybe a lot of these
Speaker 1: chips are just ending up in warehouses, and it's sort
Speaker 1: of just in case frenzy um. And right now, at
Speaker 1: least in some areas, it's looking like those that were
Speaker 1: taking that that sort of dim view of things that
Speaker 1: were right. How valuable is it to take a much
Speaker 1: longer term view here? Though demands in the long term
Speaker 1: is only ever going to increase. Should we look past
Speaker 1: these cycles, or considering how expensive these plants are and
Speaker 1: how long they take to bring them online, and how
Speaker 1: rapidly they become obsolete. Is that sort of viewpoint not useful?
Speaker 1: I mean, there are there are a couple of ways
Speaker 1: to look at it. I think you're right. You know,
Speaker 1: the industry has only ever grown when measures over an
Speaker 1: extended period. But the vicious ups and downs that we
Speaker 1: see in the meantime cause casualties, and those casualties are
Speaker 1: companies and they are stocks. You know, companies that were
Speaker 1: once industry leaders, that once did really well. A few
Speaker 1: time it wrong. If you bring a plant in at
Speaker 1: the wrong time, you're in big trouble. And that really
Speaker 1: hasn't changed. And that explains why there's only really three
Speaker 1: companies that are on the absolute leading edge now, and
Speaker 1: one of those, which is Intel, is struggling. Is it
Speaker 1: fair to say that there really has been I don't
Speaker 1: want to say a lack of innovation, but we haven't
Speaker 1: had a meaningful analyst for an upgrade cycle. Evs are
Speaker 1: out there. We know that the technology is pretty much
Speaker 1: in place. I think the same could be said for
Speaker 1: the five G infrastructure smartphones. You reference the fact that
Speaker 1: some people are saying the market is saturated earlier, right,
Speaker 1: and I'm wondering whether we just what we need is
Speaker 1: a new form of technology to drive a little bit
Speaker 1: more tech innovation as it relates to computer chips. Yeah,
Speaker 1: I mean, that's definitely representative of the one viewpoint, and
Speaker 1: in a slightly suspicious viewpoint. The flip side of that
Speaker 1: is that the industry is arguing, Look, chips are being
Speaker 1: and are getting into more things than they've ever been
Speaker 1: in one not just dependent on smartphones and PCs. Look
Speaker 1: at these giant data centers are part of everyday life.
Speaker 1: Your washing machine now has more brains than your PC
Speaker 1: had twenty years ago kind of thing. And you know
Speaker 1: that that semi conductors are utterly pervasive, is the argument.
Speaker 1: And that may be true and is certainly more true
Speaker 1: than it used to be. But whether that amounts to
Speaker 1: linear up into the right demand is is obviously another question,
Speaker 1: and we're seeing evidence, at least in the short term
Speaker 1: that that is not the case, and that's what causing
Speaker 1: the situation we're in. Now. What are the implications for
Speaker 1: the fifty two billion dollar Chips and Science Act that
Speaker 1: just got signed into law in the United States. Does
Speaker 1: it look like a waste of money and a potential
Speaker 1: political football now or was it a prudent investment for
Speaker 1: the future as supply chains, but are so uncertain. Again,
Speaker 1: you know, there are no shortage of opinions on this,
Speaker 1: and they're all quite divergent. I think the concerned, the
Speaker 1: most fundamental amount of level of concern is that, look,
Speaker 1: the industry has has been you know, ups and downs
Speaker 1: aside pretty much fine tuned towards efficiency. Everything is because
Speaker 1: it's so expensive, because it is so brutal. Everything is
Speaker 1: geared towards making as not have these giant gluts, or
Speaker 1: that the gluts are nowhere near as bad as they
Speaker 1: used to be be because we need to be more efficient.
Speaker 1: If you throw in free money and forced geographical diversity
Speaker 1: just for the kind of sake of it, and this
Speaker 1: kind of just in case mentality, then you're going to
Speaker 1: have perhaps worse gloats is one of these arguments, so
Speaker 1: that maybe in a couple of years time, when a
Speaker 1: lot of these factories come online, then look out, if
Speaker 1: we don't have really really good demand, then we're going
Speaker 1: to have yet another DWANTA in what do we know
Speaker 1: about input cost? I'm thinking either of silicon which is
Speaker 1: used in the manufacturing of the wafers, the neon gas
Speaker 1: that is used to etch some of those wafers. I mean,
Speaker 1: our companies dealing We talk a lot on this program
Speaker 1: about rising inflation. Are they dealing with inflated input cost Yeah,
Speaker 1: I mean, infut costs are definitely a problem, but I mean,
Speaker 1: arguably they're one of the biggest problems that they've had
Speaker 1: is shortage of chips themselves, because you know, the machinery,
Speaker 1: which is really the most expensive part of this. You're
Speaker 1: looking at some individual machines that costs as much as
Speaker 1: two hundred million dollars in these factories. There's been a
Speaker 1: shortage of those, which is because guess what, I haven't
Speaker 1: been enough of the right type of chips to make
Speaker 1: enough of them. So that's been the biggest sort of
Speaker 1: inflated everything that's been going on for the chipmakers themselves
Speaker 1: is the short to do chips, which is a pretty
Speaker 1: vicious irony. Right, even we've got about a minute lift,
Speaker 1: to what degree are we seeing the supply chain getting duplicated? Now?
Speaker 1: We haven't seen it so far, but we are seeing
Speaker 1: plants being created in Arizona, in Ohio in the United
Speaker 1: States and also planned in Europe. Um you know that
Speaker 1: those plants are at very early stages. At this point,
Speaker 1: they will be essentially duplicate production facilities if the demand
Speaker 1: isn't there to meet them. But if history is a guide,
Speaker 1: the shells the actual buildings that were built, and they
Speaker 1: won't be equipped if there isn't the demand for them.
Speaker 1: So you know, we've got to see how that comes
Speaker 1: out yet. Ian, good stuff. Always a pleasure. Thanks for
Speaker 1: making time to chat with us. Ian King is semiconductor reporter.
Speaker 1: He covers the industry from our studios and bureau in
Speaker 1: San Francisco.