Chips Don’t Lie

All that IPO optimism—in addition to ongoing Facebook shenanigans—keep us a wee bit distracted from the dark clouds that are gathering on the horizon. Earlier this week, the Semiconductor Industry Association reported that the “worldwide sales of semiconductors reached $32.9 billion for the month of February 2019, a decrease of 7.3 percent from the January 2019 total of $35.5 billion and 10.6 percent less than the February 2018 total of $36.8 billion.” Coming on the heels of breakneck and record-breaking growth from 2016 to 2018, this is expected to be a slow year, with the industry growing a mere 2.6 percent from $468 billion in 2018.

Sure, some of the shortfalls are due to the trade war between China and the United States. But in reality, you can lay the slowdown at the feet of smartphone sales. After growing for nearly a decade, the smartphone demand has started to behave like an overweight Om walking up a very steep hill (you’ll have to trust me on this). After Apple’s slow quarter, its competitors, like Samsung, began to show similar signs of struggle.

The decline isn’t temporary if you read what the chip sales are telling us. Apple has already said the sales are going to be slower than expected in 2019. Gartner forecasts that the sales will be down by about half-a-percent this year. PC sales are going to stagnate as well, down 3 percent for the year. All of this is manifesting itself in the chip demand.

If you need further proof of how painful it will be for some players in the market, just remember that Apple, a company whose DNA is hardware and devices, is offering a credit card to its customers and selling half-baked media packages—anything to bring in the dollars, to keep the coffers filled. The other big player in the phone business, Qualcomm, announced this week a new cloud-focused chip that helps with machine learning and artificial intelligence inside the data center. It, too, needs to find different sources of income and growth.

Autonomous cars, the internet of things, augmented and virtual reality, they are all on the horizon, but they won’t be impactful soon enough. To paraphrase Shakira, chips don’t lie.

This first appeared on my April 14, 2019, weekly newsletter. If you like to get this delivered to your inbox, just sign-up here, and I will take care of the rest.

A letter from Om

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