Managing Director, Zero One, Zero One

Vincent Fernando, CFA

Managing Director, Zero One

Equity Bottom-Up

Taiwan Semiconductor (TSMC) - ADR / Equity Bottom-Up

<ul>
<li>Inventory levels rose to highs in 3Q22 -- Now increased margin pain may come through as we move through the latest earnings season.</li>
<li>Forecasts still assume relatively strong margins vs. history and thus appear at risk of disappointment.</li>
<li>Earnings forecasts, while assuming a down-cycle, are still assuming a relatively benign down-cycle.</li>
</ul>


Inventory levels rose to highs in 3Q22 -- Now increased margin pain may come through as we move through the latest earnings season.
Forecasts still assume relatively strong margins vs. history and thus appear at risk of disappointment.
Earnings forecasts, while assuming a down-cycle, are still assuming a relatively benign down-cycle.


Why Taiwan's Semiconductor and Hardware Forecasts Might Still Be Too Optimistic

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Luxshare Precision Industry / Equity Bottom-Up

<ul>
<li>We have a positive view of Luxshare Precision Industry (002475 CH) and we believe its shares are well poised to outperform the market this year. </li>
<li>The recent production halts and protests at Foxconn's Zhengzhou facility due to the overly stringent COVID measures has benefited Luxshare since Apple has given more orders to the company.</li>
<li>We believe Luxshare will continue to grab more market share for producing iPhones and other products of Apple in 2023.</li>
</ul>


We have a positive view of Luxshare Precision Industry (002475 CH) and we believe its shares are well poised to outperform the market this year. 
The recent production halts and protests at Foxconn's Zhengzhou facility due to the overly stringent COVID measures has benefited Luxshare since Apple has given more orders to the company.
We believe Luxshare will continue to grab more market share for producing iPhones and other products of Apple in 2023.


Luxshare Precision Industry: More Market Share Gains from Hon Hai Precision Likely in 2023

<ul>
<li>Apple shares have fallen significantly on a weakening outloook; Yet manufacturers Quanta and Pegatron's shares still haven't reacted negatively.</li>
<li>Inventory levels appear too high across Apple's key contract manufacturers based on our analysis.</li>
<li>We see Quanta &amp; Pegatron at risk of margin pressure in 2023E with negative operating leverage potentially causing significant profit declines.</li>
</ul>


Apple shares have fallen significantly on a weakening outloook; Yet manufacturers Quanta and Pegatron's shares still haven't reacted negatively.
Inventory levels appear too high across Apple's key contract manufacturers based on our analysis.
We see Quanta &amp; Pegatron at risk of margin pressure in 2023E with negative operating leverage potentially causing significant profit declines.


Long Apple Vs. Short Quanta & Pegatron: Trade Ahead of Apple's Upcoming Earnings

<ul>
<li>TSMC's revenue could drop in the near-term due to customers cutting orders, however full year 2023E growth still likely thanks to advanced chips.</li>
<li>Samsung has guided staff internally for a major slump in its semiconductor unit's operating profit.</li>
<li>Apple is pushing for price cuts amongst its suppliers due to weak end demand for its products.</li>
</ul>


TSMC's revenue could drop in the near-term due to customers cutting orders, however full year 2023E growth still likely thanks to advanced chips.
Samsung has guided staff internally for a major slump in its semiconductor unit's operating profit.
Apple is pushing for price cuts amongst its suppliers due to weak end demand for its products.


Taiwan Tech Weekly: Signs TSMC Winning the 3-Nm Battle Vs. Samsung, Apple Bargaining Down Suppliers

<ul>
<li>Apple shares have fallen recently, nearing 52-week lows as analysts have been cutting share targets on China production uncertainty and weak consumer end-market demand.</li>
<li>Key Apple suppliers Quanta and Pegatron, in particular, appear to have not yet reacted to the declining market sentiment towards Apple.</li>
<li>Investors can consider Shorting Quanta and Pegatron vs. a Long position in Apple. We see limited potential for positive news flow for the stocks through January.</li>
</ul>


Apple shares have fallen recently, nearing 52-week lows as analysts have been cutting share targets on China production uncertainty and weak consumer end-market demand.
Key Apple suppliers Quanta and Pegatron, in particular, appear to have not yet reacted to the declining market sentiment towards Apple.
Investors can consider Shorting Quanta and Pegatron vs. a Long position in Apple. We see limited potential for positive news flow for the stocks through January.


Taiwan Apple Ecosystem Monitor: Quanta and Pegatron Shares Lagging Apple Decline?

Taiwan

Hon Hai Precision Industry Co., Ltd. provides electronic manufacturing services for computers, communications, and consumer electronic products.  The Company's business operations include desktop and notebook PC assembly, connector production, cable assembly, PCB assembly, handset manufacturing, networking equipment, and other consumer electronic devices manufacturing.

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Hon Hai Precision Industry (2317 TT)

Why Taiwan's Semiconductor and Hardware Forecasts Might Still Be Too Optimistic

The continued rise in inventory levels seen from 3Q22 results poses a risk for margins in 4Q22E and 1Q23E results. Earnings expectations still...

Vincent Fernando, CFA

Long Apple Vs. Short Quanta & Pegatron: Trade Ahead of Apple's Upcoming Earnings

We see Quanta & Pegatron at risk of margin pressure in 2023E -- With negative operating leverage potentially causing significant profit declines.

Vincent Fernando, CFA

Taiwan Tech Weekly: Signs TSMC Winning the 3-Nm Battle Vs. Samsung, Apple Bargaining Down Suppliers

TSMC's revenue could drop in the near-term due to customers cutting orders, however full year 2023E growth still likely thanks to advanced chips.

Vincent Fernando, CFA

Taiwan Apple Ecosystem Monitor: Quanta and Pegatron Shares Lagging Apple Decline?

Apple shares have fallen most recently, nearing 52-week lows as analysts have been cutting share targets on China production uncertainty.

Vincent Fernando, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Why Taiwan's Semiconductor and Hardware Forecasts Might Still Be Too Optimistic

The continued rise in inventory levels seen from 3Q22 results poses a risk for margins in 4Q22E and 1Q23E results. Earnings expectations still...

Vincent Fernando, CFA

Luxshare Precision Industry: More Market Share Gains from Hon Hai Precision Likely in 2023

We believe Luxshare will continue to grab more market share for producing iPhones and other products of Apple in 2023. Recent production halts at...

Douglas Kim

Long Apple Vs. Short Quanta & Pegatron: Trade Ahead of Apple's Upcoming Earnings

We see Quanta & Pegatron at risk of margin pressure in 2023E -- With negative operating leverage potentially causing significant profit declines.

Vincent Fernando, CFA

Taiwan Tech Weekly: Signs TSMC Winning the 3-Nm Battle Vs. Samsung, Apple Bargaining Down Suppliers

TSMC's revenue could drop in the near-term due to customers cutting orders, however full year 2023E growth still likely thanks to advanced chips.

Vincent Fernando, CFA

Taiwan Apple Ecosystem Monitor: Quanta and Pegatron Shares Lagging Apple Decline?

Apple shares have fallen most recently, nearing 52-week lows as analysts have been cutting share targets on China production uncertainty.

Vincent Fernando, CFA