DEEP DIVE: AI Chips & The Others

A handful of semiconductors companies reported earnings and made it clear that the rabid demand for chips used to run artificial intelligence (AI) does not carry over to demand for chips in other segments of the market. Skyworks Solutions highlighted the weakness in chips for mobile phones. NXP Semiconductors laid out the inventory destocking that has plagued the auto industry. And while Advanced Micro Devices’ (AMD) AI chips had a banner quarter, the rest of the companies’ operations struggled.

Here’s a quick look at what these chip players had to say about business in the March quarter:

(1) Chips in phones

Skyworks’ fiscal Q2 (ended March) revenue declined by 9.2%, and its adjusted net income fell 22.4% to $250.7 million. Weakness continued into the current quarter. In March and April, Skyworks saw below-normal end-market demand in its mobile business, which resulted in a buildup of inventories. As a result, the company expects the mobile business in the June quarter will decline 20%-25% q/q, which is well below seasonal patterns. Company officials implied that those declines are due to its Apple business, as the company said the Android inventory correction is over.

In other markets—like auto, industrial, solar, and gaming—Skyworks execs see some “modest sequential growth” in the current quarter, building on the modest sequential growth they saw in the March quarter. Altogether, the company forecasts earnings per share will decline to roughly $1.21 in the current quarter, down 30.0% y/y.

In the future, Skyworks is optimistic that AI will drive a mobile phone upgrade cycle. When generative AI migrates to mobile phones, it will use so much computing power that it will “burn up your battery.” So the company is working on solutions to make its offerings more power efficient, noted CEO Liam Griffin in the company’s earnings conference call. Skyworks is comfortable with its current inventory position, having reduced internal inventory for the past five quarters in a row.

(2) Chips in cars

The inventory correction in auto semiconductors continues. NXP’s auto segment revenue fell 1% y/y in Q1 to $1.8 billion. “We continue to manage an orderly process of inventory digestion with our major direct automotive Tier 1 customers,” said CEO Kurt Sievers on the earnings conference call. That digestion will continue in Q2, and revenue should decline in the high-single-digit percent range y/y. As auto is the company’s largest segment, its revenue decline will drag down NXP’s Q2 revenues, which are expected to fall by about 5% y/y.

Sales in NXP’s other segments were mixed. Industrial and Internet-of-Things revenue rose 14% y/y in Q1 to $574 million, and mobile revenue rose 34% y/y to $349 million. Both segments are expected to grow revenue in Q2 as well. However, revenue in the Communication Infrastructure & other segment fell 25% y/y to $399 million during Q1, and it’s expected to fall in the mid-20% range y/y during Q2.

NXP officials sounded more optimistic about the second half of the year, as they believe the auto inventory correction is in the rearview mirror and see signs of improving demand in all end markets. “Hence, during quarter two, we will begin to state slightly higher inventory in the channel to support our competitiveness for the anticipated second-half growth,” said Sievers.

(3) AMD’s an AI competitor