Tech Hardware and Semiconductor

1. Advantest (6857 JP): High Valuation, Low Visibility

By Scott Foster, LightStream Research

• Visibility is poor. Following excellent 1Q results, management raised FY Mar-25 sales guidance by 14%, operating profit guidance by 53% and net profit guidance by 57%. 
• Strong demand for AI processors and memory should support more than 35% growth in IC tester revenues and a doubling of operating profit in the two years to Mar-26.
• The shares have dropped to the bottom of their recent trading range, but are still selling at more than 30x our EPS estimate for next fiscal year.

2. Taiwan Dual-Listings Monitor: TSMC 33% Growth, UMC Headroom Decrease, ASE Historically Low Premium

By Vincent Fernando, CFA, Zero One

• TSMC: +15.9% Premium; Sales Rose 33% YoY in August & Headroom Increased
• UMC: +1.8% Premium; Largest Monthly Decrease in ADR Headroom, Has Consistently Been Decreasing Since May
• ASE: +2.0% Premium; At Current Level Can Consider Going Long the Premium

3. Taiwan Tech Weekly: TSMC Becoming More Dominant; Apple’s AI Opportunity; Taiwan Market Hammered

By Vincent Fernando, CFA, Zero One

• TSMC Extends Global Foundry Dominance Amid 33% Sales Surge – A Buy on Weakness Despite Market Concerns
• Apple ‘Glowtime’ AI Announcements: Mixed Analyst and Media Reactions May Overlook Key Advantage — Apple Is Best Positioned to Seamlessly Integrate AI Into Your Smartphone Experience
• Taiwan Market Gainers & Losers: Consumer Electronics & Memory Names Some of the Hardest Hit

4. Silicon Wafers. Recovery Is Nigh Yet Valuations Have Slumped To 5 Year Lows. But Why?

By William Keating, Ingenuity

• During Q224, the top 4 silicon wafer manufacturers saw their revenues increase 12.3% QoQ to ~$2.5 billion. This was down 3% YoY.
• Silicon wafer area shipments in Q224 amounted to 3,035 million square inches (MSI), an increase of 7.1% QoQ but a decline of 8.9% YoY.
• The Silicon wafer segment is entering a recovery phase. Yet, you can buy the key players today for the same price you would have paid 5 years ago. That’s nice..

1. Intel. Could Things Get Any Worse? You Bet. Here’s How.

By William Keating, Ingenuity

• Intel faces two class action lawsuits, one of which has the potential to be many times worse than the “Pentium Flaw” fiasco in 1994
• The resignation of Lip-Bu Tan from Intel’s BoD is a significant blow particularly in view of his rumoured disagreements with the CEO and other BoD members
• Intel’s below book value market cap presents an attractive opportunity for any consortium with the vision to extract the value that Gelsinger’s IDM 2.0 gambit has failed to unlock

2. Intel Cancels 20A. Now Why Would They Go & Do That?

By William Keating, Ingenuity

• Intel’s CFO says the company is going to “kind of skip over productizing 20A”
• This decision removes an important, looming milestone from Intel’s roadmap, i.e. the ramp of Arrow Lake later this year
• The decision to outsource all Arrow Lake tiles, apart from final packaging, strongly suggests that Intel 3 and Intel 18A are not capable of a cost-competitive volume ramp

3. TSMC (2330.TT; TSM.US): Benefiting from Intel (INTC.US) Skipping 20A Process.

By Patrick Liao

• Taiwan Semiconductor (TSMC) – ADR (TSM US)  will benefit from Intel Corp (INTC US)‘s decision to use their 20A processor, named Arrow Lake.  
• Intel plans to stick with the 18A process and has identified about 5 potential customers.
• As of now, TSMC remains the primary source for technology deliveries.

4. Taiwan Tech Weekly: Nvidia’s SG Revenue Red Flag; Rise of Custom Silicon; SEMICON Taiwan This Week

By Vincent Fernando, CFA, Zero One

• Latest Industry Signals — Nvidia Crashed While Marvell Soared… Custom Silicon a Threat to Nvidia’s Monster Growth? Taiwan AI/Server Exposed Names Were a Mixed Bag of Performance
• Key Events to Watch — SEMICON Taiwan This Week, We Will Be Attending
• Perspective — NVIDIA’s >5x YoY “Singapore” Revenue Growth Is A Red Flag

5. Hotchips Conference Sparknotes

By Douglas O’Laughlin, Fabricated Knowledge

• Hot Chips this year was primarily about AI chips (per the theme of every semiconductor conference as of late).
• The most impactful presentation by far was the Broadcom CPO presentation, SuperMicro water cooling, MTIA, and some honorable mentions to Enfabrica and Dojo/Mojo from Tesla.
• The biggest disappointment was AMD, which presented nothing incremental and, of course, the CPU announcements.

6. Vanguard (5347.TT): The Outlook of 4Q24 Seems a Bit Softer.

By Patrick Liao

• The 4Q24 is slightly on the downside, and we are currently adopting a somewhat conservative approach.  
• Visibility extends for no more than 3 months, and any increase in demand is primarily driven by urgent orders.
• As for the upcoming 12″ Fab, which is in collaboration with Nxp Semiconductors Nv (NXPI US), it has commenced local recruitment efforts in Singapore.

1. NVIDIA’s >5x YoY “Singapore” Revenue Growth Is A Red Flag

By William Keating, Ingenuity

• NVIDIA delivered another blockbuster quarter with record revenues of $30 billion, blowing well past the guided $28 billion, up 15% QoQ and up 122% YoY.
• $5.6 billion in revenues were attributed to Singapore, making up more than 18% of overall revenues and up >5 times YoY
• What the heck is the city state doing with all of those GPUs?

2. TSMC (2330.TT; TSM.US): 2024 Top Clients

By Patrick Liao

• TSMC’s top 5 clients for 2024 are Apple (AAPL US), Advanced Micro Devices (AMD US, Qualcomm Inc (QCOM US), Mediatek Inc (2454 TT) and NVIDIA Corp (NVDA US).
• Smartphone orders continue to dominate at TSMC, with QCOM and MediaTek being key clients.
• Looking ahead to 2025, Intel Corp (INTC US) is expected to rely more on TSMC, potentially leading to changes in TSMC’s client ranking.

3. Taiwan Dual-Listings Monitor: TSMC Maintaining Strong Premium; UMC Headroom Continues to Decrease

By Vincent Fernando, CFA, Zero One

• TSMC: +15.4% Premium; Wait for Closer to 20% Before Opening Fresh Short
• UMC: +1.2% Premium; Can Consider Shorting at 1.5% or Higher; Headroom Continues to Decrease
• ASE: +5.2% Premium; Wait for More Extreme Levels Before New Trade

4. Taiwan Tech Weekly: Nvidia Results Imminent; Apple IPhone 16 Reveal Date; Micron’s Taiwan Expansion

By Vincent Fernando, CFA, Zero One

• Nvidia, Dell, Marvell results coming out this week.. Apple iPhone 16 Reveal September 9th?
• Micron progressing on potential Taiwan capacity expansion due to strong HBM DRAM demand
• AMD acquires a key U.S. server systems integrator, expanding its enterprise server opportunity in a market including Taiwan’s server ODM players such as Hon Hai, Wiwynn, Inventec, Quanta, and Compal.

5. Intel Missed the Party, while AMD’s ZT Systems is the Bet to Stay in the Game

By Douglas O’Laughlin, Fabricated Knowledge

• First, let’s start with Intel. Intel had a pretty poor earnings result. There’s no two ways about it.
• Intel reports Q2 EPS $0.02 ex-items vs FactSet $0.10, announces $10B cost reduction plan; suspends dividend
• There was another layoff of around 15% of employees, a full dividend suspension (finally, guys), and a capex cut.

6. Earnings Preview (Nvidia and Marvell)

By Douglas O’Laughlin, Fabricated Knowledge

• It’s about to be primetime for the AI semiconductor trade, and for the first time in a long time (maybe ever), I wanted to write an earnings preview. It might be the first time (ever) and hopefully the last time.
• Two critical companies report this week. I’ll start with Marvell, the less important but the one I like, and then talk about some exciting dynamics at Nvidia that could lead to volatility and why it might not even matter.
• Marvell has always been a favorite of this newsletter. I won’t lie; I root for the hometown on this one. Inphi was my first paid post, and it worked out with a buyout by Marvell only two weeks later.

7. MHI (7011 JP): Election Unlikely to Affect Defense Budget

By Scott Foster, LightStream Research

• The next leader of Japan’s ruling LDP, who will almost certainly become prime minister in October, will probably not make major changes to the nation’s defense policy.
• Guidance remains unchanged after 1Q results that suggest the possibility of a better than expected order flow but also a material negative impact from a stronger yen.
• MHI’s valuation is not yet in speculative territory, but neither is it compelling. If the yen remains stable, we expect the share price to test its recent highs.

8. Silergy (6415.TT): 2024 Can Be Operating Trough, and Revenue in 2025 Is Expected to Grow by 20-30%.

By Patrick Liao

• Company’s 2Q24 overall performance exceeded expectations, and 3Q and 4Q are expected to be flat and to grow by 10-20% per quarter, respectively.
• With expectations of continued improvement in ASP and cost structure, overall gross profit margin is expected to continue to grow.
• Gen4 (12″) is mainly applied in EV, AI server, and new energy sectors, as these applications have higher specification requirements.

1. TSMC Foundry 2.0: Strategic Shift Or Brand Tinkering?

By William Keating, Ingenuity

• TSMC Foundry 2.0 more than doubles its addressable market and resets its market share to 28%, down from the ~60% share it has long enjoyed in the “traditional” foundry market
• The lion’s share of this new market will come from IDM, a combination of increased outsourcing (e.g. Intel) and new JV deals (e.g. Germany and Japan)
• Foundry 2.0 reflects the reality of how the semi industry is evolving and it’s the polar opposite of Intel’s IDM 2.0 

2. Taiwan Tech Weekly: Taiwan Rebound Lagging Nvidia; Why TSMC’s ‘Foundry 2.0’ Is Significant

By Vincent Fernando, CFA, Zero One

• Taiwan Tech Stocks Rally, But Lag Nvidia’s Massive Rally; Prepare for Nvidia, Dell, HP Results Next Week
• Hon Hai & Zhen Ding Show No Major AI Slowdown; Taiwan AI Supply Chain Names Lag Nvidia’s Rebound 
• TSMC Foundry 2.0: Strategic Shift Or Brand Tinkering? Why It Is Significant

3. Q224 DRAM, NAND Revenues Grow For The Fifth Quarter In a Row

By William Keating, Ingenuity

• DRAM revenues amounted to $23.3 billion in Q224, representing increases of 28.3% QoQ and 110.5% YoY.
• In the case of NAND, Q224 revenues amounted to $16.5 billion, representing increases of 17% QoQ and 83% YoY.
• Unprecedented demand for HBM & DDR5, robustly increasing content per box for both PC & Smartphone, looming capacity constraints, more/better LTA coverage are all mounting tailwinds for the memory segment 

4. AMD Scales Up Just As Intel Scales Down

By William Keating, Ingenuity

• AMD announced their intention to acquire hyperscale solutions Provider ZT Systems in a cash and stock transaction valued at $4.9 billion
• The real target of the deal is the 1,000 Data Center design engineers all of who will transfer directly to AMD’s engineering team with an annual OpEx of $150 million
• This is AMD scaling up to grab a larger share of the ~$400 billion by 2027 AI Data Center TAM just as Intel is scaling down its workforce by 15,000

5. Hon Hai & Zhen Ding Show No Major AI Slowdown; Taiwan AI Supply Chain Names Lag Nvidia’s Rebound

By Vincent Fernando, CFA, Zero One

• Hon Hai’s Latest Key Take Aways — No Slowdown for AI Server or Mobile Demand Indicated
• Zhen Ding — Delivers Higher Than Expected 2Q24 Growth; No Indication of AI Server or Mobile Slowdown
• Taiwan AI Supply Chain Names Have Lagged Nvidia’s Massive Rebound Since August 9th

6. Could a Japan “Megaquake” Disrupt Semis?

By Jim Handy, Objective Analysis

• Japan’s Meteorological Agency has issued a warning of an upcoming serious 8-9-point earthquake
• The expected epicenter is home to at least one dozen semiconductor wafer fabrication plants: “Fabs”
• While it’s hard to predict earthquakes, this news should be considered when investing in the area.

1. Taiwan Dual-Listings Monitor: TSMC Strong Spread Rebound Into Short Zone; ASE Remains Broken Down

By Vincent Fernando, CFA, Zero One

• TSMC: +16.1% Premium; Strong Spread Rebound, Potential Opportunity to Short the Spread
• UMC: +1.6% Premium; Consider Shorting the Spread at This Level
• ASE: +3.8% Premium; Uncertainty Remains on the Sustainability of the Recent Breakdown

2. Taiwan Tech Weekly: Watch Hon Hai & Zhen Ding Guidance for Servers, AI PCs/Mobiles, and IPhone 16

By Vincent Fernando, CFA, Zero One

• Last Week — TSMC’s July Revenue Soared, Asustek Guided for PC Growth Acceleration, While KYEC, Mediatek, and UMC Rebounded
• Key Events — This Week Look to Hon Hai & Zhen Ding Earnings and Guidance for Servers, AI PCs/Mobiles, iPhone 16
• PC Monitor: Promising Uptake of Microsoft Copilot and AI Services; Remain Structurally Long 

3. Screen Holdings (7735 JP): Still a Buy for the Bounce

By Scott Foster, LightStream Research

• Screen has rebounded from its recent low, but strong 1H results, the recent weakening of the Yen and reasonable valuation point to further short-term upside. 
• However, management is guiding for slightly lower operating profit in 2H, and Intel’s capex cuts also support a cautious outlook. 
• Screen expects slower growth in 2025 wafer fab equipment demand than SEMI, and neither appear to have factored in concern over insufficient return on investment in AI. 

4. Taiwan Dual-Listings Monitor: History Implies TSMC Spread to Trade Down; ASE Still Broken Down

By Vincent Fernando, CFA, Zero One

• TSMC: +16.3% Premium; Can Continue to Consider Shorting the Spread Here
• UMC: +0.7% Premium; Wait for Higher Levels Again Before a Fresh Short
• ASE: +4.6% Premium; Breakdown of Spread Could Persist Since History Indicates It’s Now a Normal Level

5. Earnings: ALGM, LRCX, TOLEY, NVMI, ONTO

By Douglas O’Laughlin, Fabricated Knowledge

• Some more minor data points and highlights: KLIC (ball bonders) says that utilization is 75-80%, which is a good read on China despite the negative industrial headwind.
• Allegro Microsystems is definitely scraping the bottom, and while Sanken (its distributor) is still increasing its inventory, I like the setup there.
• Arrow Electronics (Distributor) says things are improving, which is a big counterpoint to everything else.

6. ASPEED’s 159% July Revenue YoY Growth Bodes Well For H224 AI Server Shipments

By William Keating, Ingenuity

• ASPEED’s July revenue amounted to NTD 601 million,  up 159% YoY 
• ASPEED’s YTD revenue of NTD 2,970 million, is up 88% YoY
• This bodes well for H224 server shipments, both general purpose and AI accelerated and should be reflected in NVIDIA’s earnings/outlook scheduled for August 28

7. Himax Sees China Automotive Market Softening; AI Sensing and AI/HPC Optics Opportunities Expanding

By Vincent Fernando, CFA, Zero One

• Himax 2Q24 Results Showed Continued Margin Strength But Management Provided Cautious Outlook for 3Q24E Amidst Chinese Market Weakness
• Himax’s AI Sensing and AI/HPC Optical Data Transfer Growth Opportunity for 2025E — Investments into Obsidian Sensors & FOCI
• Himax — Maintain as a Structural Long; Market Sell-Off Opens Accumulation Opportunity

1. MARKETS AND SEMICONDUCTORS

By Douglas O’Laughlin, Fabricated Knowledge

• Hello! I went on a short hike this weekend, which always seems to cause something to change.
• What changed was that we are seeing a very large leveraged unwind in the market, driven by the BOJ’s hike in interest rates.
• Let me write out the series of events. First and foremost, last week, we saw some of the first macro jitters. The CPI came to light, which was viewed as positive. But then NFP showed a bit of weakness.

2. Taiwan Dual-Listings Monitor: TSMC and ASE Premiums Break Down Again; ASE Spread Near 1-Year Lows

By Vincent Fernando, CFA, Zero One

• TSMC: Premium Breaks Back Down to +8.3%; 5-15% Could Now Be the Key Range
• UMC: -2.2% Discount; Good Level to Go Long the Premium
• ASE: Premium Breaks Down Again, Now Only +1.5%; Consider Going Long

3. Taiwan Tech Weekly: Tough Start for Nvidia and Apple Supply Chains; Asustek, Novatek Results Ahead

By Vincent Fernando, CFA, Zero One

• Tough Start to the Week — Negative News for Nvidia and Apple Supply Chains
• Key Events: Asustek & Novatek Results; Mediatek & TSMC July Sales Data
• UMC Signals Non-AI Industry Inventory Correction Through 2024E; Why Intel Is Increasingly Important 

4. PC Monitor: Promising Uptake of Microsoft Copilot and AI Services; Remain Structurally Long

By Vincent Fernando, CFA, Zero One

• Given market concerns that AI is overhyped and not yet delivering sufficient value, we analyze Microsoft’s Copilot disclosures and examine signs of AI services traction among corporate clients.
• Signs indicate that Copilot is gaining substantial traction with corporate clients, adding value to software development, business operations, and healthcare documentation functions.
• The number of organizations paying for MSFT’s AI services is expanding rapidly. We view this as a promising indicator of increased AI adoption and substantial value creation.

5. GlobalWafers (6488.TT): Semi Industry Expected to Recover in 2H24, Holding an Bright Outlook in 2025

By Patrick Liao

• The 2Q24 revenue was NT$15.3bn, 1.6% QoQ and -14.4% YoY. GM in 2Q24 was 32.3%, -5.8% QQ and -14.3% YoY. OPM in 2Q24 was 22.0%, -16.3% QoQ and -24.1% YoY.
• The widespread adoption of AI-driven electronic devices, along with the onset of the AI-powered device replacement cycle, is likely driving increased demand for peripheral ICs and sensors. 
• With inventory levels gradually depleting and downstream customers ramping up production capacity in 2025, the semiconductor industry is expected to recover in 2H24 and maintain an optimistic outlook for 2025.

6. Asustek & Acer Key Takeaways: Strong July Revenue Growth and ‘New Product Life Cycle’ Starting 3Q24

By Vincent Fernando, CFA, Zero One

• Strong Revenue Growth Signals Robust Demand in PC and Server Markets for Asustek and Acer
• Asus Management Continues to Describe Multi-Year PC Growth Cycle Ahead; 3Q24 Will Be Start of ‘New Product Lifecycle’
• Visit to Guang Hua Digital Plaza to Review New PC Models First-Hand. Remain Structurally Long PC Makers; Acer, Asus, Dell.

7. Silicon Motion 2Q24 Results Take-Aways: Strong Growth & NAND Flash Market Share Gains Expected

By Vincent Fernando, CFA, Zero One

• Silicon Motion reported 2Q24 results on Friday, describing strong demand for NAND flash controllers driven by the PC industry and improving demand from the smartphone industry.
• The company expects industry NAND flash pricing to continue improving into 2025E. Moreover, SIMO expects to expand its market share for NAND flash controllers by year-end.
• Maintain Structural Long rating for SIMO. The recent share price decline is painful for holders however share weakness is an accumulation opportunity with an investment view to mid-2025E.

8. TSMC July Revenue Surges 44.7% YoY, Sets A New Record Monthly High

By William Keating, Ingenuity

• TSMC July revenues of NT$256.95 billion, +23.6% MoM & + a whopping 44.7% YoY
• Q224 silicon area wafer shipments amounted to 3,035 MSI, up 7.1% QoQ but down 8.9% YoY
• Q224 semiconductor sales reached $149.9 billion, +6.5% QoQ and +18.3% YoY.

9. Novatek (3034.TT): 3Q24 Guidance Slightly Weak in GM

By Patrick Liao

• The 3Q24 revenue is expected 10.5% higher than 2Q24, but the GM/OPG outlook will be 5.1%/3.6% lower because of pricing adjustments and limited NRE sales .  
• Smartphone’s demand will enter peak season with expected stockpiling for new models. Automotive inventory adjustment is needed due to muted demand.  
• Dividend payout ratio has remained at 80-85% in recent years, with no major changes expected.

10. SMIC (981.HK): Revenue and GM Continued to Trend Up in 3Q24

By Patrick Liao

• Expected sequential revenue growth of 13% to 15%, gross margin expected between 18% and 20%.
• The company has not increased capacity utilization through price cuts but supports customers in facing competition to maintain market share.
• Inventory replenishment behavior will end in the third quarter, and fourth-quarter orders will more accurately reflect actual demand rather than the impact of restocking.

1. Taiwan Tech Weekly: Hit Hard By AI/Tech Pullback; Watch UMC, Mediatek, Realtek, AMD, MSFT Earnings

By Vincent Fernando, CFA, Zero One

• Top Gainers/Loser: Taiwan Tech Stocks Hit Hard Last Week By Global AI/Tech Pullback
• Key Events This Week: Major Earnings Week Including UMC, Mediatek, Realtek, AMD, Microsoft
• TechChain Insights: Call with Silicon Motion; QLC NAND Emerging as Key Enabler for AI Devices 

2. AMD. Playing The Long Game

By William Keating, Ingenuity

• Q224 revenues of $5.8 billion, +5.5% QoQ, +9% YoY and $100 million above the guided midpoint
• AMD forecasted current quarter revenues of $6.7 billion at the midpoint, up 15% QoQ and about the same YoY.
• AMD shares are up 9% in premarket trading, hardly the response one expected from a good but not amazing report. But why?

3. Intel Q224 Meltdown. Don’t Say We Didn’t Warn You…

By William Keating, Ingenuity

• Q224 revenues of $12.8 billion, in line with their updated May outlook, ~flat QoQ and down 1% YoY.
• Gross margin (non-GAAP) was 38.7%, down 1.1 points YoY but down a whopping 4.8 points from the April outlook.
• Shares tanked >24% in after hours trading. What’s really going on at Intel? 

4. Earnings: NXPI, CDNS, TXN, SLAB, Alphawave, TSEM, KLAC, SK Hynix, MXL, STM, ASMI, VRT, UCTT

By Douglas O’Laughlin, Fabricated Knowledge

• This is going to be a big week, so I’ll be as brief as I can while getting everything in one place.
• Let’s start with Automotive, which is my favorite idea set right now. The problem is that the near-term results were much weaker than I expected, and it looks like the bottom is maybe in.
• I was expecting another quarter of scrapping along the bottom, and Industrial weakness punched a new low.

5. The ROI of AI (It’s a Dollar Auction)

By Douglas O’Laughlin, Fabricated Knowledge

• The single most complicated question to answer is what exactly the ROI of AI is.
• You can easily argue that there is some value and that it can be done quite profitably when you are just inferencing the model for money.
• The problem is that when you peer a little closer at the training costs, particularly the cost of scaling models at the frontier, it’s starting to become hard to answer. What exactly is the ROI?

6. Mediatek: AI Features Can Shorten Smartphone Replacement Cycle; New Verticals to Kick In 2H25E

By Vincent Fernando, CFA, Zero One

• Mediatek 2Q24 Earnings Beat Expectations; Strong Mid-Term Revenue Guidance Maintained
• 2Q24 Global Smartphone Market Witnessed Best Growth in Three Years
• Repeats Strong Mid-Term Guidance; Continues to Signal Revenue Strength for 2025E & 2026E. Maintain Structural Long Rating.

7. MediaTek (2454.TT): There Appears to Be No Bright Spot in 2H24F.

By Patrick Liao

• 3Q24 Sales: NT$123.5-132.4 billion, down 3% to up 4% QoQ, up 12-24% YoY. 4Q24 is expected to be a slower quarter based on current expectations.
• Advanced 3nm technology can support SP, tablets, and other end devices. AI-powered functions like ARM-based CPU or EV will bear fruit in 2025.
• The GPU has partnered with NVDA. Auto chips partnered with NVDA will be shipped out later in 2025. They will power MTK’s CPU and ISP in conjunction with NVDA’s GPU.

8. PC Monitor: MSFT Results Imminent; Look for Copilot Progress; Taiwan PC Makers Show Healthy Growth

By Vincent Fernando, CFA, Zero One

• PC Maker Shares Under Pressure — PC makers’ share prices fell by mid-to-high single digits during July. However, pure PC exposure outperformed as shown by HPQ’s gain during the month.
• Latest PC Industry Data is Promising — Latest IDC data shows that global PC shipments increased 3% YoY in 2Q24, and are up 5% YoY ex-China.
• Microsoft & Taiwan PC Maker Earnings Ahead — Microsoft reports July 30th U.S. time. We expect Taiwan PC makers to report earnings within the first two weeks of August.

9. UMC (2303.TT; UMC.US): 3Q24 Sales Were Slightly Below Consensuses

By Patrick Liao

• 3Q24 guidance: Shipment up mid-single digits QoQ; ASP: Remains firm in USD; GM: around mid-30%. (Consensuses were high single digits.)
• Has provided a 22nm HV solution for high-end OLED DDI to high-end SP, and expects to reach high-volume production in 2025.  
• Cooperation with Intel Corp (INTC US) is progressing well, targeting MP for 14nm in 2027.

10. UMC Signals Non-AI Industry Inventory Correction Through 2024E; Why Intel Is Increasingly Important

By Vincent Fernando, CFA, Zero One

• UMC’s latest results indicate a mild recovery for consumer, communications, and computing industries. UMC’s capacity utilization to continue improving but industry inventory correction could last until end-2024E.
• UMC maintained 2024E capex guidance however it’s increasingly clear UMC can’t keep up the capex arms race alone. Hence we see UMC & Intel becoming closer and closer partners.
• We continue to view UMC as a long-term accumulate, and rate the stock as Structural Long, this however requires a longer than usual multi-year holding period.

1. Is the AI Boom Over?

By Jim Handy, Objective Analysis

• Nvidia gave guidance for significantly slower Q/Q growth in Q2
• Nvidia and its HBM suppliers have told of shortages, driving hyperscale datacenters to build excess inventory
• At the first sign of softness, Nvidia’s customers are likely to enter a digestion phase, drastically reducing orders

2. ASML Readthrough: Are There Signs of an Industry Slow Down?

By Vincent Fernando, CFA, Zero One

• ASML’s results last week indicated continued strength in the semiconductor industry. We analyze the results to identify any potential signs of weakening or pauses in global industry momentum for Taiwan.
• Net system bookings surged 54% QoQ and ASML reported rising utilization levels of its clients’ equipment. Inventory days rose significantly, but this is due to upcoming 2025 orderbook deliveries.
• New US, Europe, and Japan fabs bolster strong revenue outlook into 2026E. Overall, robust industry demand persists according to ASML’s latest data, with no major signs of softness.

3. Taiwan Tech Weekly: Strong TSMC & ASML Data Fails to Rally the Semiconductor Sector

By Vincent Fernando, CFA, Zero One

• Taiwan Stocks Fall On Potential New U.S. Tech Restrictions for China & Potential Policy Shift from a Trump White House… Strong TSMC & ASML Results Fail to Rally the Sector
• Even Tighter Technology Restrictions for China?  — US Could Use Special Rule to Restrict Selling of Products Made by Foreign Companies
• We See TSMC’s Margins Increasing Much Higher Than Guidance in Long-Term; 2Q24 Shows Apple Ramping Up 

4. TechChain Insights: Call with Silicon Motion; QLC NAND Emerging as Key Enabler for AI Devices

By Vincent Fernando, CFA, Zero One

• We had a conference call with Silicon Motion; the leading global provider of NAND flash controllers and solid-state storage solutions for the consumer, enterprise, and industrial markets.
• We focus on how Silicon Motion is leveraging advantages of QLC NAND flash memory, which is becoming a critical memory solution for new AI servers, AI PCs, and AI mobiles
• Maintain Structural Long rating for Silicon Motion and $102 valuation. The company is in a leading position to benefit from the rising importance of advanced memory controllers for AI applications.

5. Earnings: TSMC, AEHR, ASML, VAT Group, Export Restrictions

By Douglas O’Laughlin, Fabricated Knowledge

• Aehr had a messy print, with the core business actually weaker than expected as they incorporated their recent acquisition. It’s hard to stay bearish, as they have a lot of potential product launches coming.

• TSMC beat gross margins despite everything because of higher utilization. The logic cycle is starting to kick off in earnest. I believe WFE Capex will be much higher next year.

• ASML talked up high-NA DRAM insertion on 25/26. Only Samsung could do it. Good luck, Samsung!

6. Taiwan Dual-Listings Monitor: TSMC and ASE Premium Trading Range Blow-Outs During Recent Sell-Off

By Vincent Fernando, CFA, Zero One

• TSMC: Crashed Then Rebounded to +15.1% Premium; Likely to Break Down Again
• UMC: -0.2% Discount; Earnings Imminent; Notable Decrease in ADR Headroom
• ASE: Rebounded to +9.2 Premium After Major Breakdown; Likely to Drop Again

7. Semiconductor Equipment Stocks: A Bounce Before the Reckoning

By Scott Foster, LightStream Research

• Irate U.S. politicians have gunned down their own tech sector, triggering declines of 7% to 20% among leading semiconductor equipment stocks outside China. 
• We expect a bounce after such large declines – and further gains for Naura and AMEC in China. 
• Investors now face difficult questions about the future of Chinese demand, the sustainability of the AI boom, and valuations. We are not optimistic.

8. Nidec (6594 JP): Buy into Current Decline

By Scott Foster, LightStream Research

• If further restructuring can be avoided, profitability should return to an acceptable level while sales growth continues. 
• The decline of EV prices has probably run its course and global demand for factory automation continues to rise despite weakness in China.
• Projected valuations are at a 10-year low. Investor attention can now shift to economic and operating risks.

9. ASE Color Suggests Widening Performance Gap Between Leading-Edge and Mature Semiconductor Players

By Vincent Fernando, CFA, Zero One

• A TALE OF TWO SEMI INDUSTRIES: ASE’s latest earnings commentary indicates that the performance gap between “leading-edge” technologies and “traditional/mature” semiconductor technologies may be widening.
• CAPITAL REQUIREMENT TO KEEP PACE IS RISING: Capacity utilization is starkly different for traditional vs. leading-edge capacity; and capital requirements to keep up in terms of advanced capacity is rising.
• ENTRY BARRIERS RISING: We suspect that smaller players could face significant challenges in keeping up with the investments necessary for leading-edge packaging and testing capacity. ASE needs to invest heavily.

10. ASEH (3017.TT; ASX.US): ​Selective Products Have Hit Bottom While General Products Lag Behind.

By Patrick Liao

• General products did not show an immediate recovery, but selective products have reached the bottom.    
• The 3Q24 sales will grow in the mid to high teens QoQ in EMS, and IC-ATM sales will grow in the mid to high single digits QoQ.  
• AI remains strong across all sectors. Despite AI SP driving the replacement cycle, other general demands still show muted recovery in 3Q24.

1. Taiwan Dual-Listings Monitor: TSMC Rebounds After Sharp Breakdown; ASE Major Premium Breakdown

By Vincent Fernando, CFA, Zero One

• TSMC: +17.9% Premium; Rebounds After Brief Breakdown; Wait for Better Levels
• UMC: +1.8% Premium; Can Consider Shorting the Premium at Current Level
• ASE: +5.5% Premium Represents a Major Breakdown; Can Consider Going Long

2. TSMC (2330.TT; TSM.US): The Outlook of 3Q24 Is Pretty Much In-Line, and GM Could Be Better.

By Patrick Liao

• TSMC expects sales to grow by mid-20% YoY in USD in 2024, compared to low to mid-20% previously.
• The N3/N5 capacity is very tight, and they are even working with customers for 2026 capacity requirements, while N2 is on track to enter MP in 4Q25.
• A16 will enter MP in 2H26, and it’s first process starts adopting backside power.

3. We See TSMC’s Margins Increasing Much Higher Than Guidance in Long-Term; 2Q24 Shows Apple Ramping Up

By Vincent Fernando, CFA, Zero One

• Significant revenue guidance hike — TSMC reported 2Q24 results, increasing 2024E revenue growth guidance to exceed ‘mid-20’s’ percent, a significant hike from previous guidance.
• Management is low-balling LT margins — Latest figures and long-term margin color makes us believe that TSMC will be able to increase GM much higher than current official LT guidance.
• Signs of Apple expecting strong iPhone 16 sales — TSMC reported strength in smartphone end-applications and we believe this is reflective of Apple ramping up re: stronger iPhone volume expectations.

4. MediaTek (2454.TT): 3Q24 Might Grow Slightly QoQ, While AI PCs Could Be Delivered in 2H25.

By Patrick Liao

• Mediatek Inc (2454 TT) is forecasted to experience slight growth in 3Q24 compared to 2Q24.  
• Qualcomm Inc (QCOM US) is expected to introduce AI PCs in 2024, while Mediatek Inc (2454 TT) scheduled for this product is anticipated to delivered in 2H25.  
• The shipment forecast for the Dimensity 9400 is approximately 5 million sets in 2H24.

5. TSMC. Take The Pullback Gift

By William Keating, Ingenuity

• TSMC guided Q324 revenues of $22.8 billion at the midpoint, up 9.5% QoQ and up 32% YoY
• Increased full year guidance to be above mid-20% YoY growth in US dollar terms
• Share price has declined ~14% from its 52 week high but still up >2x from its 52 week low. Many will view this pullback as a gift, we certainly do…