Capital spending in the chip industry is forecast to fall in 2019 and 2020, according to a report by market researcher IC Insights. The forecast comes as the demand for smartphones and data center servers that ignited a semiconductor boom in recent years fades, and memory chip prices drop rapidly amid a global supply glut.
The chip industry's capital spending is set to slump 15% in 2019 after growing 11% in 2018, according to IC Insights. Spending is set to decline another 5% in 2020 as global chip sales struggle to rebound. The drop-off underscores the uncertainy among chip suppliers and their customers fueled by trade friction between the United States and China.
Memory chip suppliers grappling with DRAM and NAND oversupply are leading the charge on cutbacks. For instance, Micron Technology, the largest American maker of memory chips, said last month it would reduce it planned capital spending in 2019 by $1.5 billion, bringing its total to $9 billion. Deeper cuts to Micron's spending are coming in 2020.
"Micron's attitude toward next year's capital spending outlook will be representative of the industry in general," IC Insights said in the report. Chip suppliers will be likely be "very conservative" with their capital spending in 2020 as sales this year are trending downward, according to IC Insights. Growth in capital spending will likely pick up again in 2021.