Micron Technology Inc, a maker of memory chips, forecast on Thursday much worse-than-expected revenue for the current quarter and said the market had "weakened considerably in a very short period of time."
Chip stocks fell on Friday including those of Taiwan's TSMC and MediaTek, Dutch chip-gear maker ASML, Franco-Italian firm STMicroelectronics and Germany's Infineon.
Through the pandemic, chipmakers were overwhelmed trying to meet big orders from makers of smartphones and personal computers (PCs) that saw a surge in demand from people working from home. The resulting chip shortage led companies, including automakers, to slash production, delay shipments and pay steep premiums for key chips.
Recent COVID-19 lockdowns in China had global executives issuing grave warnings about supply chokepoints until recently.
On the flipside, China's curbs slammed consumer demand and boosted inflation in the world's second-largest economy, resulting in steep falls in sales of smartphones and PCs.
Advanced Micro Devices Inc flagged last month a slowdown in PC sales this year after two years of strong demand.
Micron said China's recent lockdowns caused a 30% drop in its China revenue in the current quarter.
Industrywide shipments of smartphones to China - the world's biggest smartphone market - are expected to shrink by 18% this year, according to Gartner. It expects worldwide shipments to drop 7% due to supply chain snarls and the Russia-Ukraine war.
Ranjit Atwal, senior director analyst at Gartner, said falling smartphone and PC sales will result in the chip shortage easing this year.
Atwal, who was expecting chip demand and supply to equal out next year, predicts that cycle will be brought forward to this year. He said the declining smartphone market was not expected to be offset by any surge in chip demand from automakers.
Still, Micron executives said they were confident about demand for their chips in the long term, and industry analysts said there was still a lot of demand for chips used in EVs, 5G and high-speed computing.
TSMC, the world's largest contract chipmaker, has seen its major clients cut chip orders for the rest of 2022, Taiwanese daily Digitimes said on Friday, citing industry sources. TSMC declined to comment.
No. 1 memory chipmaker Samsung Electronics, in an attempt to check an inventory glut, temporarily halted new procurement orders and asked some suppliers to delay or cut shipments of components for several weeks, Nikkei said last month.
"I think the extent of the shift has definitely been bigger than anyone was anticipating in the ecosystem," Micron's chief business officer, Sumit Sadana, said on Thursday.
As well, inflation is the highest in years in many countries including the United States, which has increased the risk of recession and is leading to job cuts and tightening budgets.
Tesla, which uses hundreds of chips in its electric cars, has shuttered a California office and laid off about 200 workers. CEO Elon Musk previously said he had a "super bad" feeling about the economy and that the company needs to cut salaried staff by about 10%.
Earlier this week, Volkswagen said chip shortages were easing and starting to offset supply chain bottlenecks and rising costs.
As recently as March, the German automaker warned that supply bottlenecks would hurt growth this year after it sold 2 million fewer cars than planned last year due to the chip crunch.
(Reporting by Sayantani Ghosh in Singapore; Additional reporting by Supantha Mukherjee in Stockholm, Ben Blanchard in Taipei, and Byungwook Kim in Seoul; Editing by Kim Coghill)
By Sayantani Ghosh