Chipmaker woes fuel recession worries

Semiconductor stocks took a beating on Friday after a grim profit warning from Idaho-based Micron Technology Inc sparked fresh concerns about the U.S.’s earnings power as the country falters. potentially leading to a recession.

Despite a broader stock market rally, the Philadelphia Stock Exchange’s semiconductor index fell 3.8% after Micron, the largest memory semiconductor maker in the United States, reported that demand was declining for chips used in computers and smartphones.

The index – home to US chip giants Advanced Micro Devices Inc and Nvidia Corp, as well as Micron – is down 38% this year.

Photo courtesy of Micron Technology Taiwan Inc

Historically, semiconductor stocks have been a key barometer for the stock market and the broader economy. The chips are used in a wide range of industries important for growth: appliances, data centers, games and artificial intelligence.

If conditions are weak for chips, it raises questions about demand in other segments of the economy, which is a worrying warning sign for the stock market, said Matt Maley, senior strategist at Miller Tabak. + Co.

“We didn’t have enough chips, and now the demand is down,” Maley said. “What signal does it send? This highlights a growing concern that the downturn we are going through is turning into a recession. »

The shortage of semiconductors, due to demand and supply factors, has eased somewhat, but production of some chips used in vehicles and household appliances remains limited. Disturbing reports from semiconductor companies ahead of their second-quarter results are raising fears that demand could outstrip supply for even longer.

“What this weakness indicates is that the economy is slowing down and there is potential for a recession,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder LLC. “The semi-finals are a red flag because they are really into everything. They are such an integral part of everything sold today. They are the most rudimentary equipment, so it is a major disadvantage for the economy.

Fears of an impending global recession and rising inflation levels are forcing consumers and businesses to moderate spending.

Global PC shipments are on track to decline 9.5% this year, research firm Gartner Inc.

“The second half of the year got off to a rather inauspicious start following pessimistic comments from Micron, which had negative implications for smartphones, data centers and overall demand for consumer discretionary goods,” he said. said Jim Dixon, senior equity trader at Mirabaud Securities. . “The disappointing forecast could be the prelude to an earnings recession.”

A report from Digitimes Asia added to the woes as the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), saw major customers cut chip orders for the rest of this year.

Shares of TSMC fell 4.73% on Friday and have fallen around 26.26% so far this year.

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