The recently released U.S. nonfarm payroll data showed unusually weak growth, raising questions in the market. Will this lead to an adjustment in the Federal Reserve’s policy trajectory? Is there evidence of a genuine deterioration in the U.S. labor market, or are there other contributing factors?

The U.S. nonfarm payroll increased by only 12,000 jobs in October, a sharp decline of 211,000 from the previous month and well below the market expectation of 110,000. The unemployment rate remained at 4.1%, consistent with the prior month.

 
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Why did this month’s nonfarm payroll decline so significantly?

This significant decline can largely be attributed to the impact of Hurricane Milton, the Boeing strike, and BLS’s survey methodology. According to the BLS, its establishment survey only counts individuals who received a paycheck during the week of the 12th each month as employed. In contrast, the household survey counts individuals as employed even if, due to weather disruptions or leave, they did not receive a paycheck in that specific week.

Hurricane Milton made landfall in Florida on October 9, coinciding with the establishment survey period. Therefore, individuals who were unable to receive a paycheck in the week of October 12 due to work stoppages caused by extreme weather were not counted as employed, which is a primary reason for the substantial drop in October’s nonfarm payroll numbers.

Is Weather the Primary Factor Behind Weak Employment Data?

Other data supports this explanation. First, the household survey counted those who had a job but were unable to work due to adverse weather. The number of individuals who could not work due to inclement weather reached 512,000 in October, an increase of 460,000 from the previous month and the highest figure since January this year.

Additionally, ADP reported a 233,000 increase in private-sector employment for October. ADP considers all employees with payroll records during the month as employed, so even if individuals missed a paycheck during the week of the 12th due to work stoppages, they were still counted if they received pay in other weeks. This difference in definition is a primary reason for the disparity between ADP’s and BLS’s data.

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Moreover, the Boeing strike may have also affected this month’s nonfarm employment data. Manufacturing employment in October fell by 46,000, with employment in transportation equipment manufacturing down by 44,400, likely reflecting the 33,000 workers impacted by the Boeing strike.

Overall, although October’s nonfarm employment figures showed a significant decline, this was largely driven by short-term factors. However, other indicators suggest that the labor market is still cooling. U.S. job openings have dropped to their lowest level in nearly three years, and voluntary quits have fallen to their lowest level since June 2020, indicating that labor demand from companies is waning, though no marked deterioration has yet occurred.

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Ahead of the upcoming U.S. presidential election, U.S. semiconductor equipment giants Applied Materials and Lam Research are already working out to exclude Chinese firms from supply chains, driven by Washington’s directives to limit China’s role in sensitive leading-edge technologies, according to a report by The Wall Street Journal.

According to the report, major chip toolmakers, including Applied Materials and Lam Research, are notifying suppliers that they must source alternatives for certain Chinese components or risk their vendor status. Suppliers have also been informed that they must not have Chinese investors or shareholders, according to sources cited by the report.

The move would potentially drive up costs, as finding non-Chinese alternatives at comparable prices will be challenging, noted industry executives interviewed by The Wall Street Journal.

China is now reportedly the largest market by revenue for top global chip equipment suppliers. The latest quarterly financial reports from companies such as Applied Materials, Lam Research, and KLA show that China contributes approximately 40% of their sales.

When asked about whether the act of finding alternatives to Chinese-made components has been initiated, Lam Research stated it complies with U.S. export controls within the chip-manufacturing supply chain, while Applied Materials indicated it seeks alternative component sources to ensure consistent availability, according to the report.

It is worth noting that as the U.S.-China Chip War escalates, both presidential candidates, Donald Trump and Kamala Devi Harris, promise a firmer stance on trade with China, and the semiconductor industry is particularly targeted due to its national security significance recently.

Earlier in September, the Biden administration has introduced new export controls targeting critical technologies, including quantum computing, advanced chip making tools, specific components and software tied to metals and alloys, and high-bandwidth chips essential for AI applications, according to a previous report by CNBC.

While these restrictions apply globally, concerns have been raised on major semiconductor equipment companies, such as Dutch giant ASML and U.S. heavyweights Applied Materials and Lam Research.

The Wall Street Journal report also mentions that last year, the Commerce Department already introduced regulations requiring U.S. toolmakers to secure licenses before sharing technical details with Chinese suppliers. They received a temporary license to maintain current suppliers, set to expire at the end of 2025. This summer, the department clarified that suppliers outside China must also comply if their parent company is based in China.

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• [News] US Reportedly Expands Investigation into Applied Materials, Possibly due to Concerns of Shipments to SMIC
• [News] China Contributes Over 40% of U.S. Chip Equipment Makers’ Revenue despite Export Controls

(Photo credit: Applied Materials)

According to a report from TechNews, citing the Reuters, Silver Lake, Bain Capital and other potential acquirers are planning to acquire a minority stake in Altera, Intel’s programmable chips division.

Altera, a market leader in FPGAs, was acquired by Intel in 2015 for nearly USD 17 billion, with the initial goal of expanding Intel’s presence in the Internet of Things market. However, given Intel’s current financial pressures, Altera has become a business that can be spun off and sold.

Sources indicate that Intel hopes to sell Altera for a price similar to what it paid when acquiring the company in 2015. While it is unclear how much of Altera’s stake Intel plans to sell, any potential deal is expected to be valued at several billion dollars, according to the Reuters.

The Reuters report, citing industry sources, revealed that Intel has started the process of spinning off Altera as a separate company and has begun preliminary steps to sell Altera shares. Sources also noted that while negotiations are still in the early stages, Intel expects to receive initial bids from potential buyers in the coming weeks, according to the report.

In addition to Silver Lake and Bain Capital, the Reuters report mentioned that, citing industry sources, private equity firm Francisco Partners has also shown interest in acquiring a stake in Altera and is expected to be among the bidders.

According to the Reuters, for the quarter ending September 30, Intel announced that Altera’s revenue grew 14%, reaching USD 412 million. During the post-earnings conference call, Intel CEO Pat Gelsinger stated that the company is focused on selling a stake in Altera as part of its path toward an IPO in the coming years. He added that discussions with potential investors are underway, with a conclusion expected in early 2025.

The Reuters report noted that the transaction is expected to provide Intel with a much-needed cash injection. Despite announcing an optimistic revenue forecast in its latest quarterly report, Intel’s stock is down over 50% this year, as the company has missed the AI boom and is facing challenges to turn things around.

Notably, the Reuters report pointed out that before Intel acquired Altera, Altera had many of its chips manufactured by TSMC. Following the acquisition, Intel planned to shift Altera’s chip production to its own factories, while at that time, Intel was beginning to lose its manufacturing lead to TSMC.

According to the report from the Reuters, Intel’s transition of Altera’s production to its own factories proved to be lengthy and expensive. This move contributed to Altera losing market share to its main competitor, Xilinx, which was later acquired by AMD.

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• [News] Intel Reportedly Aims to Raise Billions through Sale of Minority Stake in Altera
• [News] AMD Could Emerge as a Prospective Buyer for Intel’s Potential Sale of Altera

(Photo credit: Intel)

As South Korean memory giants Samsung and SK hynix announced their third quarter financial reports, posting a 112% and 94% year-over-year revenue growth, respectively, the threat from increasing output of Chinese rivals such as CXMT, which drives prices down, has reportedly prompted them to significantly cut back on legacy memory chip production, according to the report by the Korea Economic Daily.

According to the report, China’s ChangXin Memory Technologies (CXMT) has been ramping up the production of older chips like DDR4 and LPDDR4X, resulting in severe price pressure in legacy products.

CXMT has expanded its monthly DRAM production capacity from 40,000 wafer sheets in 2020 to 160,000 sheets. This capacity is expected to reach 200,000 sheets by year-end and 300,000 by the close of 2025, the report said.

SK hynix to Reduce DDR4 Production to 20% of Total DRAM Output

Industry sources cited by the report noted that in a recent investor relations session with Goldman Sachs, SK hynix suggested that it plans to reduce DDR4 DRAM production to 20% of its total DRAM output by the end of the year, down from 30% in September and 40% in June.

On the other hand, according to the report, in an earnings call with analysts on last week, Kim Jae-joon, executive vice president of Samsung’s device solutions (DS) division, confirmed plans to reduce production of legacy DRAM and NAND flash chips, aligning with industry expectations that chipmakers are scaling back on conventional memory output.

HBM and eSSD Emerge as the New Focus

Instead, both memory giants highlighted in their earnings call that they would shift their focus to highly profitable premium products like HBM and enterprise solid-drivers (eSSDs).

These adjustments by Samsung and SK hynix align with strong server DRAM demand driven by major tech firms like Google and China’s Baidu investing in server infrastructure, while PC DRAM sales have remained stagnant, according to the Korea Economic Daily.

According to SK hynix, as generative AI is developing into a multi-modal1 form and global big tech companies continue to invest to develop artificial general intelligence (AGI), the demand of memory for AI servers such as HBM and eSSD has grown noticeably this year. SK hynix predicts that this trend will continue next year.

According to the Korea Economic Daily, anticipating a prolonged global over supply, SK is accelerating the upgrade of its older DRAM lines in Wuxi, China, to advanced lines for producing fourth-generation 10-nanometer 1a DRAM.

While maintaining steady NAND flash production, in the meantime, SK is increasing the operation rate at its eSSD facility in Dalian, China, to nearly full capacity, according to sources cited by the report.

On the other hand, Samsung noted that in 2025, the company plans to expand the sales of HBM3E and the portion of high-end products such as DDR5 modules with 128GB density or higher for servers and LPDDR5X for mobile, PC, servers, and so on.

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• [News] SK hynix and Samsung Reportedly Step up Focus on HBM4 and CXL amid Rising Chinese Competition

(Photo credit: SK hynix)

According to a report from Economic Daily News, Southeast Asia has emerged as an investment hub for major cloud service providers (CSPs) worldwide. In response, Taiwanese server ODMs such as Foxconn, Quanta, Wiwynn, and Inventec are actively expanding their production capability in the region to meet the growing demand for AI servers from international CSPs and secure more orders by producing locally.

The report indicated that, for example, leading server ODM Foxconn has facilities in Taiwan, Vietnam, Thailand, Indonesia, and Malaysia. Taiwan and Vietnam serve as the two primary production bases for servers. Thailand mainly focuses on electric vehicle assembly, while Indonesia primarily manufactures electric vehicle components, and Malaysia mainly produces semiconductor-related products.

On the other hand, Ingrasys’s Taoyuan NanChing factory, a subsidiary of Foxconn, primarily produces AI servers, high-speed computing accelerators, and cloud storage products, according to the report citing industry sources. The Taoyuan NanChing factory has been recognized as the world’s first AI server lighthouse factory for leveraging AI to significantly enhance production efficiency, and NVIDIA GPU modules are produced automatically in the NanChing factory, as noted in the report.

As for Foxconn’s Vietnam factory, with the expansion of Foxconn Industrial Internet (Fii) in the local area, it has also become one of the major centers for server production, according to the report.

Another Taiwanese server ODM that has expanded its production in Southeast Asia is Quanta. The report noted that Quanta’s server factories are primarily located in Taiwan and Thailand. In August of this year, the company announced plans to invest 850 million baht (approximately USD 25 million) to expand its factory in Thailand, aiming to enhance server-related production capability in response to strong customer demand.

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• [News] Vietnam’s Opportunities and Challenges as the Next Semiconductor Hub amid Geopolitical Tensions
• [News] Google to Invest USD 2 Billion in Malaysia, Focusing on Data Centers and AI

(Photo credit: Foxconn)