The Chip Industry: Partying Like It’s 1999
(Bloomberg) -- Anyone caught out by the recent collapse of shares in chip companies just wasn't paying attention.
There have been plenty of signals of trouble going back at least two months. In August I flagged one of those when I wrote about inventories throughout the supply chain climbing to their highest since the financial crisis. Earlier this month TSMC cut its full-year guidance for the third time, a highly unusual trend for a company that has the best possible overview of the chip market’s direction.
This week Seoul-based reporter Sam Kim wrote about the ongoing capex splurge by Korean chipmakers. “The capital spending is underpinned by expectations that new technologies will fuel demand even as growth in the global smartphone market stalls," Sam writes. Sony is also joining the party, saying this week that it will boost investments in chipmaking capacity to $5.3 billion over the next three years.
In other words, don't worry about all those warning signs because we have new drivers of demand just around the corner. AI, IoT and autonomous driving are the buzzwords of choice. Yet they still seem to have trouble gauging demand that’s being driven by established products such as smartphones, games consoles and PCs.
"This time is different" is a mantra we should all be wary of. It was the excuse we heard ahead of the dot-com bust in the early 2000s when executives claimed that old-school metrics such as revenue and profit didn't apply.
Even Intel and TSMC, arguably two of the most experienced and conservative of chipmakers, recently stated plans to spend as much on equipment next year as they will this year. That's particularly bewildering for TSMC, given that it's consistently failed this year to correctly predict demand.
The only exception seems to be Samsung, which signaled overnight that it’s going to tap on the brakes by reducing capex spending to levels even below what analysts’ had been predicting.
Yet the party is still going strong, like it's 1999.
And here’s what you need to know in global technology news
Blackmail backfires. It’s not often that you hear about an extortion plot at an Indian startup — but that’s exactly what happened at Paytm, the digital-payments provider.
Falling short. Baidu, China’s biggest search provider, said regulatory changes, a slowing economy and a medical-ads unit overhaul could impact its business.
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