Headline, October 13 2022/ ''' '' CHIP CYCLE CHUG '' '''

''' '' CHIP CYCLE 

CHUG '' '''

AT THE TIME - AS FATE WOULD HAVE IT, - STUDENT JENSEN HUANG got literally schooled in adversity. Now, seeing through the chip cycle, Nvidia's boss may be underestimating the brutality of the slump. So what?

When the co-founder of Nvidia, America's most valuable semiconductor company, was first sent to a boarding school in Kentucky, little did his Taiwanese relatives realise that it was a school for troubled youths.

He shared a room with a knife-scarred boy fresh out of prison. On some other days he would either be picked upon or forced to clean the toilets. Far from buckling under the strain, he said that he learned to tolerate discomfort. That is a useful skill in the highly cyclical world of silicon chips.

ONCE AGAIN, the industry is in meltdown. In the tail end of the Covid 19 pandemic in the late 2021, when almost no one - from car companies to cryptocurrency miners - could get their hands on chips, semiconductor manufacturers, or fabs, went on a spending spree.

Capital spending soared by almost 75% in six months compared with pre-pandemic levels, says Malcolm Penn of Future Horizons, a forcaster. Because of long lead times, much of that new capacity is still under construction. Yet in the meantime inflation, economic slowdown, Chinese lockdowns and a cryptocurrency collapse have buffeted demand.

The purchase of computers and smartphones has also slowed. The result is a chip glut as stark as shortages were a year ago, hitting many chipmakers profits.

THAT even includes Nvidia, which has replaced Intel as the bluest chip of American chip companies. On August 24th, it reported a staggering slide in second-quarter earnings, while slashing revenue forecasts for the third-time since May.

From a peak valuation of more than $800 billion in late 2021, it is now worth less than $400 billion. True to form, Mr.Huang remained sanguine. By early next year, he said after the earnings release, he expects exciting new chip architecture for data centers and gaming., Nvidia's two biggest businesses, to revive its fortunes.

Yet as he looks through his spectacles at the dazzling new models that he thinks will change the face of artificial intelligence [AI], as well as more nebulous concepts like the metaverse, is there a danger that he is underestimating the brutality of the here and now?

For short-time investors, there obviously is. Things could get worse, especially in crypto. Nvidia has long been sniffy about the way cryptocurrency miners have bought up its graphics processing units [GPUS], chiefly designed for gaming, to mine Ethereum's ether, the second-largest cryptocurrency.

The last time its revenues crumbled in late 2019, the main culprit was a collapse in the price of ether, which it had woefully underestimated as a risk. The crash was short-lived. By the time the pandemic hit a few months later, the craze ether helped propel Nvidia's stratospheric stockmarket recovery.

Matt Bryson of Wedbush Securities, a broker, says that at the peak sales of chips for crypto mining may have generated about 20-25% of its gaming revenues. However reluctant was Nvidia was to associate with the cryptoverse, the serendipity played hugely in its favor.

NO LONGER. This year the price of ether has tanked, and though Nvidia acknowledges the problem, it makes no attempt to quantify the impact. 

Moreover, Ethereum is thought to be on the verge of switching its blockchain technology used to validate transactions from ''proof of work,'' which uses massive number-crunching powered by Nvidia's GPUS, to a less energy - intensive mechanism called ''proof of stake'', which will make GPUS redundant.

Partly in anticipation of this, crypto miners have dumped their GPUS onto second-hand e-commerce sites like eBay, contributing to sharp decline in prices. With revenues from Ethereum gone for good, the fear is that the crypto winter could turn into an ice age.

Another source of concern for investors stems from the use of GPUS in what Nvidia calls data centres and which includes cloud computing and the processing of AI. A negligible business six years ago now eclipses gaming, once Nvidia's main source of revenue.

The Honour and serving of the Latest Global Operational Research on Chip Cycles and the Changing Markets & Demands, continues. The World Students Society thanks The Economist.

With respectful dedication to All Chip makers and then Students, Professors and Teachers of the world. See Ya ll prepare and register for Great Global Elections on The World Students Society - the exclusive ownership of every student in the world : wssciw.blogspot.com and Twitter - !E-WOW! - The Ecosystem 2011 :

Good Night and God Bless

SAM Daily Times - the Voice of the Voiceless