Plenty of chips for smartphones and laptops, but not for cars

Chipmaker Micron Technologies warned investors on June 30 about a looming glut of high-tech memory chips used in smartphones and laptops. Consumer demand for those devices unexpectedly dropped thanks to rising inflation, sagging consumer spending in China, and fears of an impending recession, according to CEO Sanjay Mehrotra. “Given the change in market conditions, we are taking immediate action to reduce our supply growth trajectory,” he said.

Micron Technologies predicted that its smartphone division would ship about 130 million fewer chips than expected this year and its PC division would cut sales by about 30 million chips—a 10% drop in both categories. The downturn will last at least half a year, chief business officer Sumit Sadana predicted, unless a recession hits and brings demand down further.

Meanwhile, automakers are complaining they still can’t find enough low-tech chips to keep their assembly lines running at full capacity. GM, Toyota, and Honda each told investors their sales had slumped in the most recent quarter because of the ongoing chip shortage. Collectively, automakers will build an estimated 3 million fewer cars this year for lack of semiconductors.

Semiconductor stocks are feeling recession fears

Investors are watching semiconductor supply rise while contemplating the possibility that inflation or a recession will cause a drop in consumer demand for everything that uses chips, including electronics, appliances, and even cars. As a result, chip stocks have been plummeting, even though semiconductor sales are still historically high and chipmakers are recording record revenues. The Philadelphia Stock Exchange Semiconductor Index, which tracks big chip manufacturers, has fallen nearly 40% this year, after doubling in value during the pandemic.

Semiconductor stocks have underperformed even in the context of a slumping stock market. The S&P 500 index, which tracks large US companies, has fallen only about half as much as the Philadelphia semiconductor index.

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