
Chip industry had worst sales year since dot-com bubble burst - baybal2
https://www.bloomberg.com/news/articles/2020-02-03/chip-industry-had-worst-sales-year-since-dot-com-bubble-burst
======
ksec
>Revenue fell 12% to $412 billion in 2019, ....That’s the biggest drop since
2001, when industry sales slumped 32% as the dot-com bubble burst.

In 2001 post Dot Com Bubble, that 32% drop was _real_. The 12% drop in 2019
was only due to NAND and RAM went from Record High and back to "normal".
Samsung was the most profitable company in 2018 simply because NAND and DRAM.
Almost everyone in Semiconductor industry is making fairly decent amount of
profits and increase unit shipment in 2019. Look at look at the leading
Foundry ( TSMC ) _and_ Intel all making record profits and shipment.

Bloomberg is quickly becoming BuzzFeed for financial news.

~~~
mrspeaker
I know we're being trained to hate journalists these days, but that quoted
sentence is just stating a fact: the biggest drop since dotcom bubble... and
the article reads very reasonable. I don't see anything controversial in there
- seems to balance the negatives with things like "the rate of decline abated"
and "the decline in industry sales didn’t stop investors betting on a future
rebound." \- how is that sensationalist? Maybe they could have reported it as
"19th best year since dot com bubble"?

~~~
cbanek
As someone who watches the financial news, it almost feels more like baseball
statistics, where they say something like, "this batter on sunny days in April
has an advantage against left-handed pitchers."

While it may be true, it feels more like p-hacking than some kind of useful
fact.

I felt like the financial industry was really doing this early in 2019, after
the huge drop in stocks, everyone was like the S&P is up 20% this year already
(forgetting to mention it was down a huge amount in December and ready for a
comeback).

Of course how you frame these numbers and which numbers you pick is part of
the reporting. When taking numbers of out of context, I think it can get a
little sensationalist.

~~~
smabie
According to EMH, all information is subsumed into the price. As such, how
could the huge 2018 Christmas drop affect future returns?

~~~
barbecue_sauce
Maybe EMH isn't correct?

~~~
VHRanger
Statistically it's not incorrect.

While you should be skeptical of strong forms of the EMH, all evidence points
to weak forms of the EMH being true.

A corrolary that is good to keep in mind is "markets are more efficient than
you're smart" \-- prevents you from starting doomed financial enterprises

------
baybal2
I wrote before that semiconductor industry economists were awaiting a crash
for a very long time.

At least since 2016, I saw notion of a coming crash coming from very esteemed
industry publications that cost few thousand bucks to access.

Everybody in semi knows of the cyclical nature of the industry, and the non-
stop long bull run since 2008 looked very unusual to many.

Why is this so important?

The reason is that few years ago, the industry committed itself to the biggest
capital infusion in history with EUV.

Those fabs costs tenths of billions, and take years to build. They are never
ever constructed without an extremely thorough research done with top tier
economists.

~~~
lwb
> tenths of billions

Do you mean tens of billions? The difference is two orders of magnitude :)

~~~
fred_is_fred
I assume OP meant tenths of trillions.

------
riku_iki
I run this site, where we track public companies revenues, and Q3 2019 shows
-8% drop in revenue for semiconductors segment, but it can be because Q3 2018
had +15% Y/Y:
[https://finintelligence.com/app/segment/2873229239](https://finintelligence.com/app/segment/2873229239)

------
baybal2
Repost from:
[https://news.ycombinator.com/item?id=20630279](https://news.ycombinator.com/item?id=20630279)

Semiconductor industry is a very reliable canary for the long term economic
situation. Semi industry employs top economists. It is critically important
for them to have extremely thorough economics research when they decide on
their financials. Fabs cost billions, and whole fab complexes close to $10B.
They take many years to construct and make running.

Financing plans for them have to be done impeccably, and account for way more
than capital forecasts.

The financial outlook for a fab changes dramatically depending on how the
world changes during its construction. The few fragments of such report done
for TSMC I saw included everything down to political, cultural, and
technological black swan events.

One of the most bizarre one that they actually managed to predict was the
current regulatory and sociocultural "dotcom backlash".

For example, they see big server chip buyers like Facebook, Amazon, Google
greatly scaling down their ambitions, and therefore they did not include the
option for big reticle sizes in their lithography equipment buy list.

------
pkaye
I used to work in the semiconductor equipment industry in the 90s and it was
quite cyclical. One year the demand was great and they were hiring like crazy
and the next year things were looking dismal and they had to do layoffs. This
repeated many times though the overall trend was of growth. I managed to stick
around for some time since I was in R&D and with a bit of luck. Things
smoothed out considerably over the decades.

~~~
dylan604
Does this follow companies not buying new equipment annually, but wait a
couple of years inbetween before the next upgrade?

~~~
Polylactic_acid
I'm not sure why all companies would be on the same cycle of upgrading. You
would assume they would all be offset and it wouldn't make a difference in
sales.

------
wyxuan
Could be that Intel chip supply shortages, and decreased average sale prices
(due to AMD offerings) could be the reason for this. Not as many people
upgrading as inter generational gains start to level off.

~~~
zozbot234
I think embedded systems account for the vast majority of chip production, so
any dynamics involving Intel/AMD would be very minor.

~~~
Retric
Embedded chips are generally cheap. CPU’s sell for ~1,000x the price of most
embedded chips. X00$ CPU vs X0c 32 bit microprocessors / microcontroller etc.

~~~
siracusa23
10c 32-bit microcontroller from Intel/AMD? Have I been buying the wrong chips?
Care to share some links?

EDIT: commenter above edited their post, mentioned $.10 MCUs from Intel/AMD

~~~
Retric
I edited the comment for clarity, but never mentioned Intel or AMD.

~~~
AnimalMuppet
All right, X0 c 32-bit microcontrollers from whom?

~~~
mooibos
Cypress, Microchip, STM... Really, take your pick.

------
jackhack
Agreed, this news doesn't square with market performance. For instance, FSELX
(Fidelity Select Semiconductors portfolio) mutual fund is up 43% over one
year, doubling the performance of the S&P500. Top-10 holdings (68%) include
Intel, Qualcomm, Broadcom, Nvidia, Micron, Marvell, ON, NXP, FLex, Commscope,
so it's a fairly broad measure. For this cross-section to be performing so
strongly, others must be circling the drain if indeed the industry is turning
down steeply. I'm not seeing that.

~~~
totalZero
In saying that there cannot be a turndown because stocks are rallying, you are
not comparing apples to apples. Companies can circle the drain while their
stock rallies. Companies can do good business while their stock gets crushed.

First, people are buying equities in general because interest rates are being
held low artificially by the Fed, which has been pressured by the President to
do this.

Second, few traders and investors understand how to differentiate
semiconductor companies, so when it blows, it will all blow. People get out of
crowded trades chaotically. Investors and traders, who are largely
unsophisticated about the specific technologies that each company develops and
markets, will punish the sector rather than choosing individual names to sell.
I will say it again: most people who trade tech professionally have no fucking
clue what these companies actually build. They look at numbers, watch earnings
reports, and listen to buzzword-laden commentary from research analysts.

Look at Apple. Their supply chain is threatened by factory shutdowns and a
huge market of theirs has basically been put on ice, but their stock is near
all-time highs. They haven't made a game-changing product since the days of
Steve Jobs, and people usually say their value now comes from their execution.
But how can you execute if your suppliers are shut down and one of your major
markets is closed for business?

INTC is facing tons of pressure in enterprise and PC from AMD, their 10nm has
been a disaster for them, and yet their stock popped 9% on earnings due to
cloud demand. It's trading near dot-com bubble levels. They are getting hurt
in their competition vs TSMC on fab, and losing market share to AMD, yet their
stock is like a rocket ship. Doesn't this seem weird?

QCOM has been hit hard by several regulators and in a number of lawsuits for
its IP bullying, it has come out and said that coronavirus is going to hurt
smartphone manufacturing and sales, and yet its stock is trading near all-time
highs.

Don't ever confuse stock performance with company performance. Boeing stock is
trading at more than double where it was when the 737 Max 8 took its first
flight four years ago.

~~~
siracusa23
I'm honestly extremely pleased with my iPad Pro and Airpods Pro, both are
honestly impressive pieces of tech. I'm coming from an EE background, so I
might not be able to really distinguish nuances in software, but hardware-wise
they are impressive.

I can't agree with you on the Apple perspective, and it's my subjective
opinion, I might be also biased since I have a large position on APPL.
However, I can agree on the idea that the stock price can be completely
disconnected from the fundamentals of the company.

~~~
codyb
Apple’s most recent earnings call seems to suggest they’re doing just fine
expanding into wearable accessories and monthly subscriptions as well.

Seems like half of NYC has airpods when I’m walking around and in most of the
stores here they won’t be in stock until March (a jump from mid February a
couple of weeks ago).

That could be supply chain disruption or they’re selling like hot cakes.

Very satisfied with my pro pod pair post purchase as well.

------
swiley
No one can innovate when they can’t understand. No one can understand when
they can’t read the data sheets for chips they don’t use.

Want people to build things with your crap? Don’t fight them when they try.

~~~
adammunich
This absolutely. The chip people always make custom protocols for
/everything/.

~~~
swiley
Custom protocols are not really the end of the world, it’s when they make a
custom protocol and then use copyright to force you to do certain things in
order to use it.

~~~
adammunich
They really do slow down development though, and flrxe you to hire specialists
who can make sense of the often terse datasheets.

~~~
selectodude
Wouldn't a lot of the complexity be due to the fact that these are likely the
most complex pieces of engineering on earth?

~~~
makapuf
Complexity and nicely written datasheets /doc are tractable. Obfuscated docs
and average complexity is cryptic.

------
tjpaudio
Thanks for the post, tipped me off to the current rock-bottom ram prices to
max out the ram of my desktop I built 5 years ago.

------
jhallenworld
There is interesting news about Xilinx specifically: they are no longer
allowed to sell the Huawei, so their stock declined recently. The consequence
is that Huawei needs to switch to home-grown ASICs, and I'm sure the pressure
is on for a high-end home-grown FPGA vendor.

So this is just one company, but I'm wondering if tariffs in general are a
part of this decline.

[https://epsnews.com/2019/10/28/xilinx-cuts-huawei-from-
futur...](https://epsnews.com/2019/10/28/xilinx-cuts-huawei-from-future-
forecasts/)

[https://www.nytimes.com/2020/01/20/business/economy/trump-
us...](https://www.nytimes.com/2020/01/20/business/economy/trump-us-china-
deal-micron-trade-war.html)

------
kpmcc
"hurt by a trade war between the largest chip producer, the U.S., and the
largest consumer, China"

This sentence confuses me. Seems like they have it backwards. Can someone
clear this up?

~~~
trynumber9
It depends. Do you include Taiwan in China or not? If not, then yes.

In fact, U.S. is the largest manufacturer of semiconductors. In 2018, nearly
half of the total semiconductor market was occupied by firms based in the
U.S., according to the Factbook2019 of SIA.

------
Animats
Here's the historical total graph, not the year to year change graph.[1]
Unclear if this is constant dollars. That's from the World Semiconductor Trade
Association, which collects statistics and resells them, expensively. The
Bloomberg article is what you get from the free tier, press releases.

[1] [https://www.wsts.org/](https://www.wsts.org/)

------
cgh
Coincidentally, I've been wondering about dumping some cash into a
semiconductor ETF like eg the VanEck offering (SMH). I noticed that there are
leveraged ETFs like SOXL that magnify returns and I typically associate these
riskier offering with precious metals and so forth. I hadn't realised that
semiconductors seem to fall into that same "cyclical commodity" category.

------
anonsivalley652
Question: why then are there recent media reports that DDR4 and SSD prices
going to be increased? Is this Samsung's unilateral oligopolic move, another
price fixing event, a ploy to stimulate panic buying and/or some other
structural move related to real ability to supply? (Yes, I remember the hyper-
commodification DRAM price wars and price fixing of years gone by.)

------
Bombthecat
Uhhhh I think it is because everyone is waiting for the next gen consoles of
Xbox and PlayStation. There are even rumors for a Nintendo switch "x"

And they all need chips.. And electric vehicles are also slowly catching up.
They need chips too.

Its not a bubble burst, just a generation change (and wait)

------
Rafuino
This must be mostly attributable to the massive NAND and DRAM prices falls in
2019.

------
Vysero
If only the US had the infrastructure to do everything from mining the
materials all the way up the chain to building custom PC’s, wouldn’t that be
cool? If we could do everything “in house” so to speak?

~~~
SuoDuanDao
Seems like it should be a priority for homeland security really...

~~~
Vysero
Not sure about you guys but I would be willing to pay a premium if I knew that
every part in my computer was created right here in my own country.

~~~
SuoDuanDao
Pretty nasty pressure move to strangle your rival's access to chips. New
foundries can't be built over night.

------
neonate
[https://archive.md/3Ms5l](https://archive.md/3Ms5l)

------
crmrc114
This article sounds alarmist. "Revenue fell 12% to $412 billion in 2019, the
Semiconductor Industry Association said Monday in a statement. That’s the
biggest drop since 2001, when industry sales slumped 32% as the dot-com bubble
burst."

I don't see how 12% is a skyfall number. Especially when compared to 32%.

It was pay-walled so I did not read any further.

~~~
pjc50
Revenue falling at all in any tech industry is usually cause for extreme
concern, as all the investor numbers assume infinite growth.

~~~
t-writescode
Perhaps that’s the real problem there.

If companies like Intel and AMD are still turning a respectable profit,
there’s no cause for actual panic, yet.

Investors should learn that intractable P/Es on established companies are, at
best, unwise in all but the edge cases.

~~~
throwaway5752
Let's stop discussing a hypothetical. Analysts in this space are well aware of
the cyclical nature of it, and have better data than some of the companies in
question. The premise is false.

Cyclical trough/peak earnings normalization is decades old from industrial and
resource sectors.

------
fokinsean
hmmm every time I'm at the store I see like 3 new brands of chips I've never
seen before.

