Steep input costs and slowing demand is impacting sectors across the board, but the most pain is being felt by consumer device makers that rely on the semiconductor industry. Aegon Asset Management, which previously dialled down its outlook for the semiconductor sector, now adds that end markets for semiconductors such as appliances and other electronics will see lower demand going forward.

Michael Heenan, Senior Credit Research Analyst at Aegon AM, observes that in early September the inventory in the semiconductor industry was building and that some companies had started to revise their guidance lower. Coming from a semiconductor shortage to a glut, inventories were at historically high levels in several end markets.

Aegon AM says that its views on the semiconductor industry were reinforced by a Gartner report, which lowered the quarter-on-quarter worldwide IT spending forecast and reduced the semiconductor revenue guidance.

“Based on the elevated inventory levels throughout the channels and the expectation of slower demand, particularly within PCs and smartphones, we expect pricing to fall in commodity-like semiconductors (such as logic and memory chips),” writes Heenan.

Separately, Aegon sees regulatory issues with the US ban on chip exports to China impacting chipmakers and slowing demand for certain equipment. The silver lining is the sustained demand for semiconductors from cloud providers and automakers.

“We believe cyclicality persists in the semiconductor industry, but the consolidation within the sector over the last decade will likely make troughs and peaks less overwhelming as suppliers can better regulate output to match demand and correct channel/customer inventories,” as per Heenan.

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