• Most semiconductor companies reported YoY sales decline, apart from NVDA , ASML, and AMAT. Worst declines were the memory player with 50% YoY drop in revenue.
• Only NVDA, ASML, AMD guided for YoY growth in 3Q23. Others are expecting contraction due to inventory adjustments and customer order pushouts.
• Outlook for 3Q23 and 2H23 remains subdued, mainly dragged down by continued weakness in memory and slower-than-expected China recovery. Strong AI-related business was the bright spot, but is still a small portion relative to the overall market.

Summary

Processor: Intel and AMD sales declined as channel inventory levels for both consumer and server customers remained elevated during the quarter. Interestingly, both companies are expecting their consumer CPU business to ship more closely to consumption in 2H23 as inventory levels normalize. Server business continues seeing elevated inventory. This is because cloud customers and enterprises are focusing their investments more towards AI deployments rather than general-purpose computing, shifting their budgets to purchase more GPUs than CPUs. Intel has guided for a revenue decline in Q3, while AMD is expecting a slight sales growth as its consumer business returns to positive YoY growth. Meanwhile, NVDA’s revenue doubled YoY during the quarter. Customers invest heavily in its GPUs to power their generative AI race. NVDA also guided Q3 sales to nearly triple YoY driven by continued strong growth from its server GPU sales, with demand visibility extending into CY2024. It is also actively working to increase its supply to fulfill the customer demand.

Memory: Micron, Samsung, and SK Hynix reported 50% YoY revenue decline and net loss for the quarter. Channel inventory is said to be reducing due to production cuts, which resulted in a slowdown in memory price decline. The three companies expect supply-demand balance to improve further in 2H23. The effects of production cuts gradually materialise alongside stronger seasonality due to new product launches from smartphone and PC customers. Inventories in cloud service providers remain high as they reduce their IT spending and are focusing more on AI-related investments. As such, one bright side for Q2 was the strong demand for high-bandwidth memory (HBM) and DDR5, which are the high-end DRAM used in AI servers. However, the strong demand for those high-end chips is insufficient to offset the decline as they still account for only a small portion of the overall memory market.