Patrick Gelsinger
Photographer: Patrick T. Fallon/Bloomberg via Getty Images

The chips are down

Protocol Enterprise

Hello and welcome to Protocol Enterprise! Today: why a boom cycle for semiconductors has quickly turned into a bust, how internet infrastructure held up under the news of Queen Elizabeth’s death and this week in enterprise moves.

The chip dip

The chip industry is experiencing a bit of whiplash, as the business has ricocheted from record sales and profit during the chip shortage to what is looking more like a down cycle with each passing week.

Semiconductors have been a boom-bust business for decades, and the industry is in a bit of disarray at the moment: Companies up and down the chip food chain are moving to adapt their businesses to rapidly changing conditions.

  • The Semiconductor Industry Association said Tuesday that overall July sales dropped 2.3% to $49 billion compared with June.
  • At an investor conference in New York Wednesday Intel CEO Pat Gelsinger said the company now expects annual revenue to be roughly $11 billion less than the annual revenue guidance of $76 billion it issued in April.
  • Gelsinger acknowledged problems Intel had delivering on its promises; he said the damage from Ukraine war-related fallout, China’s COVID-19 lockdowns and inflation in the U.S. are the main three factors at play.

The choppy market goes well beyond what Intel is experiencing. In a recent earnings call Nvidia warned of a tough third quarter, and Samsung warned of a tough finish to 2022.

  • “Demand is down big time,” said Matt Murphy, CEO of data center chipmaker Marvell, at another bank’s conference Wednesday according to a transcript from Sentieo.
  • “There's definitely churn, in every end market, let's be clear,” Murphy said. “You've got what you've guided and talked about. And then underneath, it's like the duck going across the water.”

The arms dealers of the chip industry — the semiconductor manufacturing equipment makers ASML, Lam Research, Applied Materials — are still struggling to build enough machines.

  • “It's like a tale of two cities, frankly,” Lam Research CFO Doug Bettinger said at an investor conference Wednesday. “The end markets are starting to soften a little bit. But at the same time, the equipment sector is completely sold out and will be for the foreseeable future.”
  • ASML, which exclusively produces the equipment needed to make the most advanced chips, is now looking at lead times for new machines of over 18 months, according to the company’s investor relations vice president, Skip Miller.
  • Its prior generation of tools, which are used to produce all but the most advanced chips, now have a lead time of more than a year.
  • “It's just the reality of the fact that we have this still-continued gap in 2023, where demand, we've talked about being in the order of 40% above the supply line,” he said.

But TSMC appears not to be feeling the pain. With 53% market share of the global contract chip business, it seems to be humming along just fine.

  • Unlike U.S. public companies, which report financial information every three months, TSMC issues a monthly revenue report.
  • Thursday morning, TSMC indicated its August revenue was NT$218 billion ($7.05 billion) — that’s a 17% gain compared with July, and a nearly 60% improvement compared with August of 2021.
  • Bernstein chip analyst Mark Li said in a research note that he’s confident TSMC will defy the cyclical downturn much of the rest of the industry will feel.
  • Li said there are customer order cuts, but that his checks indicate that the underutilization will be “mild and temporary.”
— Max A. Cherney (email | twitter)

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Stiff upper lip

Twitter reportedly experienced intermittent outages this afternoon (EST time) following a spike in traffic after the British royal family announced the death of Queen Elizabeth II, according to London-based NetBlocks, which tracks network disruptions and shutdowns. The outages were not related to country-level internet disruptions or filtering, NetBlocks said, and Twitter’s own status page reported all of its systems were operational.

Britain’s longest-reigning monarch passed away at the age of 96 at Balmoral Castle, a royal residence in Aberdeenshire, Scotland, according to a Tweet from the royal family at 1:30 p.m. EST. She had served as queen since 1952.

Wikipedia reported no incidents and said its reading and editing systems also remained operational. But its total request volume — the number of HTTP requests per second that its content delivery network is servicing — saw more than a 137% increase between 1:30 p.m. and 1:55 p.m. EST. The average duration it took for its application servers to reply to uncached requests increased from 0.65 seconds to 1.35 seconds during that same time frame, but the Wikimedia Foundation says that values of five seconds or less are normal.

— Donna Goodison (email | twitter)

Enterprise moves

Over the past week, Splunk and Applied Materials added new C-suite members, Shopify had an executive shake-up and more.

Jason Lee was named CISO at Splunk. Lee was formerly the CISO at Zoom.

Charles Read was named Operations CFO at Applied Materials. Read was formerly corporate vice president, corporate controller and chief accounting officer.

Kaz Nejatian was promoted to COO at Shopify. Nejatian was formerly vice president of product.

Jeff Hoffmeister was named CFO at Shopify. Hoffmeister was formerly managing director for Morgan Stanley in its technology investment banking group.

Meredith Whittaker joined Signal as president. Whittaker was formerly a manager at Google, where she organized a mass walkout over the company’s handling of sexual assault allegations.

Mark Gibbs joined UiPath as senior vice president and managing director for Europe, the Middle East and Africa. Gibbs was formerly president of SAP Greater China.

Shlomit Weiss was named SVP and GM of design engineering at Intel. Weiss was formerly co-general manager of the design engineering group.

Dean Klinger joined Blend Labs as head of revenue. Klinger was formerly senior vice president of sales, major accounts at Snowflake.

— Aisha Counts (email | twitter)

Around the enterprise

Shares in cybersecurity company Darktrace fell by over a third after enterprise software’s favorite white knight — Thoma Bravo — said it had called off talks to purchase the company.

Salesforce will produce a TV series for CNBC on “how a Salesforce client uses Salesforce's technology to tackle societal issues,” according to Axios, which will run on Saturday afternoons later this September, just as the college football schedule kicks into high gear.

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