The American chip industry’s US$1.5t meltdown

IN LICKING County, Ohio, fleets of dump trucks and bulldozers are shifting earth on the future site of chip factories. Intel is building two “fabs” there at a cost of around US$20 billion. In March, President Joe Biden called this expanse of dirt a “field of dreams” in his State of the Union speech. It was “the ground on which America’s future will be built”, he intoned.

In the spring, it was easy to be dreamy about America’s chip industry. The pandemic-induced semiconductor crunch had proved just how crucial chips were to modern life. Demand was still rising for all sorts of chip-powered technology, which these days, is most of it. Investors were less gloomy on chips than on other tech, which were taking a stock market beating. The Chips Act was making its way through Congress, promising to plough subsidies worth US$52 billion into the domestic industry, in order to reduce America’s reliance on foreign fabs and support projects like Intel’s Ohio factory.

Half a year later, the dreams look nightmarish. Demand for silicon appears to be falling as quickly as it had risen during the pandemic. In late September, Micron, an Idaho-based maker of memory chips, reported a 20 per cent year-on-year fall in quarterly sales. A week later, AMD, a Californian chip designer, slashed its sales estimate for the third quarter by 16 per cent. Within days, Bloomberg reported that Intel plans to lay off thousands of staff, following a string of poor results that are likely to continue when it presents its latest quarterly report on Oct 27. Since July, a basket of America’s 30 or so biggest chip firms have cut revenue forecasts for the third quarter from US$99 billion to US$88 billion. So far this year, more than US$1.5 trillion has been wiped from the combined market value of American-listed semiconductor companies.