SAN FRANCISCO — Don’t look now: Storm clouds are gathering over tech.
Chinese consumers have pulled back their spending, blowing a $9 billion hole in Apple’s recent quarterly revenue. China was again a culprit when Nvidia warned last month that its revenue would come in 20 percent below expectations, though the graphics chip maker also blamed slack demand from Bitcoin miners and cloud data centers.
Intel, the big chip maker, cited intensifying “trade and macro concerns” for financial results in January that did not meet expectations. And Samsung, another semiconductor powerhouse, said sales plunged 10 percent in the fourth quarter because of weakening demand for its memory chips from data centers and smartphones.
China, smartphones, Bitcoin and cloud computing have been among the major drivers of the long tech boom, which in turn has powered the global economy for the last decade. The ingredient common to all of these sectors is computer chips, which form the brains of devices and whose ubiquity means they provide early signals about changes in supply and demand.
Warnings about a sales slowdown this year have come in recent weeks from big chip suppliers that also include Taiwan Semiconductor Manufacturing Company, Micron Technology and Western Digital. It’s an abrupt reversal, coming on the heels of stellar results in 2018 for the business that gave Silicon Valley its name.
Last year, manufacturers shipped a staggering 1 trillion chips and other semiconductor devices, 10 percent more than the year before, IC Insights estimates. But 2019 is shaping up to be a much different story, now that several important sources of chip demand appear to be dampening.
The notion that a chip dip could lead to a general downturn evokes memories of 2000, when one day tech had an unlimited future and the next it was crashing in what became known as the dot-com bust.
Back then, investors showed no mercy. Intel made what seemed a modest adjustment to its revenue forecast for the third quarter of 2000, saying it would be up 3 to 5 percent instead of 7 to 9 percent. The value of the company immediately fell by nearly 30 percent over the next few days.
This year, with a similar downgrade, investors largely shrugged it off. Intel shed about 5 percent of its value over a week.
While acknowledging the parallels to 2000, Gene Munster, research director for Loup Ventures, a venture capital firm, said, “I think it’s different this time.”
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Back then, among the best customers for the established chip firms were start-ups, which had more dreams than revenue. As the start-ups faltered, the chip firms were imperiled. The storm lasted for years.
“These are all real companies now, with real customers,” Mr. Munster said. “People are willing to look past a few bumpy months.”
Even if the problems do not linger, they are a reminder that demand is not eternal. That seems to be what happened with smartphones, which use multiple varieties of chips to run software, process data and connect to cellular networks.
Consider Apple, which gave a muted forecast in October for the holiday season and followed up early last month with its first full-fledged revenue warning in 16 years. The iPhone maker faces stiff competition and slumping demand in China. Total smartphone shipments fell 15 percent in that country in the fourth quarter, according to research firm Canalys.
Michael Wolf, who surveys consumers annually about their technology and media usage for his management consulting firm Activate, said people seem to be shifting to lower-priced phone models and cheaper service plans. But he said demand seems strong for digital subscription services like Netflix, video games, online advertising and business-to-business sales for companies like Microsoft.
“From all of our research, I don’t see some general consumer malaise,” Mr. Wolf said.
Yet several other businesses appear to be softening as well, including the market for server systems used by cloud service operators, including Amazon, Microsoft and Google. Sales of high-priced chips for such hardware have driven profits for companies like Intel and Nvidia, but they now say that equipment buyers for data centers have turned cautious.
“Cloud service providers shifted from building capacity to absorbing capacity,” Robert Swan, who was then Intel’s chief financial officer and acting chief executive, said on a conference call after Intel released its fourth-quarter results. (On Thursday, Mr. Swan became Intel’s chief executive.)
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Longtime tech industry watchers began picking up trouble signs late last spring in the market for memory chips, an essential component in computers that in decades past prompted trade tensions between the United States and rivals in Japan and South Korea. Makers of a key category called dynamic random-access memory, or DRAM, have suffered product shortages and gluts that whipsawed pricing and heralded changing fortunes for the broader industry.
During the dot-com bust of 2001, DRAM revenue plummeted 63 percent while total semiconductor revenue fell 31 percent, according to Gartner data.
But conditions changed dramatically over the years as manufacturers fled from the lack of profits, leaving three major DRAM makers — Samsung, Hynix and Micron. They have been slow to boost production, enabling them to keep their prices high. And they also benefited as memory became more important in smartphones, data center hardware and other products beyond the personal computers that once drove most sales.
“The markets today are structurally different,” Sanjay Mehrotra, Micron’s chief executive, said in a recent interview.
Yet market cycles haven’t disappeared entirely. DRAM prices peaked last June and began sliding, prompting Micron and Samsung to issue their recent profit warnings. DRAMeXchange, a Taiwan-based firm that tracks the market, predicts DRAM prices will fall an additional 20 percent in the first quarter.
Memory chips “behave like onions or steel or any other commodity,” said Jim Handy, a market researcher at Objective Analysis. “If there is an oversupply, prices fall.”
Nvidia presents an extreme example of both boom and bust. The 25-year-old company, which pioneered the specialized processors that generate images in video games, became one of Silicon Valley’s most valuable companies in 2017 as those chips were adapted for artificial intelligence uses by internet giants.
But Nvidia’s processors also became extremely popular for the mathematical process of mining digital currency, driving a surge in demand that inflated prices and created a shortage of chips. Buyers wound up placing multiple or overly ambitious orders, making it hard for the company to get a handle on conventional demand for its technology.
The cryptocurrency bubble faded suddenly last year, causing Nvidia’s revenue and stock price to tumble as the company wound up with extra inventories of unsold chips. The crypto issue “ended up being way, way bigger” for the company than expected, said Hans Mosesmann, an analyst at Rosenblatt Securities. “It’s been a crazy story.”
For all the turmoil, industry executives and analysts said that business conditions remain a lot healthier than past semiconductor slumps. For one thing, a series of mergers has reduced price competition. Companies like Micron, which routinely lost money in past cycles, are expected to remain solidly profitable even if sales dip.
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Beyond that, there is the glorious future.
“Eventually the storm will pass and these companies — Nvidia, Apple, Samsung — will have a pole position in the next tech growth curve, including A.I., health care, self-driving cars, 5G,” said Mr. Munster, the Loup analyst. “The curve is so exciting, so juicy, so full of opportunity.”
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