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U.S. chip industry may be hit again: cloud computing services growth slows, corporate spending is more conservative

08/17/2022 US chip industry, cloud computing services, chips

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  Cloud computing and data centers, which have long been the chip industry's most important source of business, may now be its next problem: There are signs that as consumers sign up for cloud entertainment services and companies reconfigure offices, This pillar industry of the United States during the new crown epidemic will also experience a slowdown in growth.


  Analysts say cloud computing has rarely had to adapt to a prolonged economic downturn, making it difficult to predict whether it will survive a recession, given the rapid rise of the industry over the past 10 years as more businesses adopt cloud technology. Influenced by the economic downturn.


  With the U.S. now suffering its worst inflation in 40 years, weighing on consumers, economists are also worried about a recession and advertisers are also tightening spending, tech giants say.


  "Investors are worried about the other boot falling," said Bernstein analyst Stacy Rasgon. He added that the advertising shortage, which has hit companies such as Facebook and Snapchat, could dampen investment in data centers.


  In the latest earnings season, tech giants have disclosed that annual cloud computing revenue growth may slow - on a month-on-month basis, Alphabet's Google Cloud fell 8 percentage points, Microsoft Azure fell 6 percentage points, and Amazon AWS also fell more than 3 percentage points.


  Nathaniel Harmon, research director at market research firm YipitData, said revenue growth in the cloud computing market was still fast, but he also noted some signs of weakness in places like Europe.


  The three companies said during the pandemic that to save money, they would extend the life of data center equipment, possibly from three to six years in some cases.


  "If they squeeze data center spending, Intel or AMD will sell less chips," said Glenn O'Donnell, research director at Forrester Research.


  Intel disclosed in its latest quarterly report that the company's data center and artificial intelligence group business shrank 16% to $4.6 billion, missing Wall Street expectations by $2 billion. This further exacerbated market concerns.


  Last week, Micron Technology gave even worse expectations, this time not just for PCs and smartphones, but also for cloud computing.


  But Sumit Sadana, Micron's chief business officer, said the current dilemma is not as simple as a slowdown in the cloud computing market. That's partly because a shortage of some chips has hampered production of servers, causing a backlog of other chips -- similar to chip shortages in the auto industry.


  According to Richard Barnet, chief marketing officer at Supplyframe, an information service provider for the electronics industry, inventories across the server supply chain are at an all-time high, but key components are in short supply. "Let's say a server needs 500 parts, and now there's a shortage of 10 or 20 parts, preventing it from being produced."


  Still, Sadana cautioned that companies worried about the economy would also be conservative in their chip purchases.


  Forrester's O'Donnell says he sees this happening across the tech industry. "When we talk to customers about spending plans, a lot of people say, 'You know, we're not going to turn off the tap, but we're going to turn it off a little bit,'" he said. middle."


  While industry executives and analysts debate the impact of the economic slowdown on the cloud computing market, Super Micro Computer, which specializes in customizing servers for new technologies, says developments in industries such as self-driving cars and the metaverse will still create new ones. need.


  "With many projects out of the lab and into the real world, there's a lot of pent-up growth potential," said Michael McNerney, the company's vice president of marketing and cybersecurity.


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