Softening chip market hit harder by trade wars

Problems in the chip market are being made worse by trade disputes between the U.S. and China.

Softening chip market hit harder by trade wars
Fancycrave (CC0)

Seasonal softness and a looming tariff dispute between China and the U.S. put a dampener on the chip market, and it only looks to be getting worse with China interfering in the business of a U.S. company.

Last week, Micron Technology, the number four chip vendor, according to IHS Markit, said China is blocking sales of some of its memory products. While based in Boise, Idaho, and having a large fabrication plant there, Micron also makes a lot of products in China for the Chinese market. And Micron is currently in a legal battle with Taiwanese chip maker United Microelectronics over alleged patent violations in China.

Last week, a Chinese court granted a preliminary injunction banning Micron subsidiaries in China from manufacturing or selling DRAM modules and NAND flash chips used in solid-state drives. The good news, according to Micron, is that the injunction covers only 1 percent of its revenue.

According to Trendforce, a market research firm specializing in memory, the ruling will significantly impact Micron's sales in China and Micron's downstream partners.

Trendforce estimates that China is should consume about 26 percent of Micron's DRAM bit output in 2018 and about 20 percent of Micron's NAND bit output. So, the court in Taiwan isn’t hurting Micron in the U.S. at all; it’s hurting China.

Still, this is not something the market or consumers need. IHS reports that global chip revenues declined 3.4 percent during the first quarter of 2018 to $115.8 billion due to slowing sales in the wireless communications sector along with expected seasonality during the first quarter.

The memory category actually experienced some growth thanks to demand for memory components in the enterprise and storage markets.

“Even with the slight revenue decline during the quarter, the NAND market still achieved its second-highest revenue quarter on record, with strong demand coming from the enterprise and client solid-state drive markets,” said Craig Stice, senior director, memory, and storage for IHS Markit, in a statement.

China/U.S. trade war could disrupt chip supply chain, raise prices

But there is the unknown of a looming trade war between the U.S. and China. On July 6, the Trump administration imposed tariffs on Chinese goods, among them electronics components, along with other traditional products like steel and aluminum. With China expected to impose tariffs on U.S. goods in response, it’s liable to impact tech companies that have business in China, such as Micron.

If electronics makers such as Micron, plus Intel, AMD and other chip makers see supply chain disruptions, it could lead to shortages of key products. That, in turn, could lead to price increases for things such as DRAM and NAND.

Neither side is ready to blink, it seems. After China responded to Trump’s tariffs with traffic of its own, the Trump administration just piled on tariffs for another $200 billion in goods. So, if you are looking to make some capital expenses, plan accordingly.

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