This weekly newsletter pulls together summaries of the top ten most-read Insights across Tech Hardware and Semiconductor on Smartkarma.
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1. What Stories TSMC Investor Conference Telling Us About Customers, Supply Chains, and Competitors
- TSMC expects 2024 semi sector in recovery with 20-25% y/y growth itself, driven by AI customers. By controlling capex, more rooms to raise dividends but no growth for equipment vendors.
- Faster ramp on N3, likely N3E, N3P than competitor’s. TSMC expects 3nm from 6% of sales in 3Q23, 12.7% in 4Q23 to 15% in 2024, 3x y/y increase in 2024.
- TSMC reports a nearly 30% q/q drop on IOT and consumer IC demand and sees weakness on 12″ mature technology despite better demand 8″ specialty technology.
2. TSMC Results Make Buy Story Even More Clear; Strong 2024E Guidance & Reiterates Multi-Year Growth
- TSMC reported 4Q23 results at the upper end of its guidance. More importantly, the company guided for low/mid 20% 2024E sales growth and reiterated an expected 15-20% multi-year CAGR.
- The company provided optimistic guidance for the overall semiconductor industry, forecasting 10% growth in 2024E. TSMC expects to grow much faster than the industry, however.
- TSMC is one of our Structural Longs; our NT$760 target implies 29% upside. The latest results make TSMC’s Buy case even more clear, in our view.
3. TSMC. Roaring Into Year Of The Dragon
- Q423 revenues of $19.62 billion, at the high end of guidance, up 13.8% QoQ and down 1.5% YoY. Net profit margin of 38.2% results in net income of ~$7.5 billion.
- FY23 revenues of $69.3 billion, down 8.7% YoY, only the second such down year since 2005
- Bullish FY24 forecast for >20% YoY growth sends share price soaring in overnight trading.
4. Taiwan Tech Weekly: TSMC Results; AI PC Market Site Visit; Alchip GDR Offering
- TSMC Results Tomorrow, Interest Will Be Elevated After Taiwan’s Election Result
- AI PC Availability Tight in Taipei? We Visited Taipei’s Guanghua Consumer Electronics Market Over the Weekend
- Alchip Technologies GDR Offering – Has Been Riding on an Unwavering Momentum Over the Past Year
5. AI Industry Structure and Business Model: What Inning is It?
- What inning is AI in?
- If history is a guide, it’s hard to predict the twists and turns of a new market growing from nothing.
- Here’s my humble attempt at estimating AI penetration and my thoughts on the run-rate business of AI models and industry structure.
6. GlobalWafers (6488.TT): 1Q24F Outlook Could Be a Bit Downside, but 2Q24F Could Be Picking Upward.
- The Globalwafers (6488 TT) outlook for 1Q24F is likely to show a slightly negative QoQ revenue trend. However, we anticipate a positive direction from 2Q24F onwards.
- We have a relatively high conviction for 2024F compared to 2023, indicating upside potential for the Memory and Logic sectors.
- The supply of 12″ raw wafers remains constrained among the top market players, and overcoming this constraint won’t be easy.
7. Taiwan Dual-Listings Monitor: TSMC ADRs Outpace Local, Extreme Spread; ChipMOS Good Long Level
- TSMC: Stock Prices Soared After Reporting Earnings, But ADR Rose Higher… Now +12.4% Premium, Shortable Level
- ASE: ADR Spread Has Rebounded Substantially, Now +8.6%. Not Yet at Short Levels.
- ChipMOS: ADR Spread Drops to -2.2%, Good Level to Go Long.
8. TSMC (2330.TT; TSM.US): Expect Utilization Rate to Rise with Business Recovery.
- The revenue/ GM/ OPM/ EPS is USD$19.62bn/ 53%/ 41.6%/ NT$9.21 in 4Q23. The revenue/ GMO/ OPM is US$18-18.8bn/ 52-54%/ 40-42% in 1Q24F guidance.
- TSMC’s sales for 2024F are expected to grow in the low to mid-twenties YoY.
- 2024F is expected to be a relatively healthy year for the high-performance computing (HPC) and artificial intelligence (AI) sectors, with robust demand.
9. Novatek (3034.TT): Reserved IPhone 16 DDIC for 3Q24F Shipment; 1Q24F Outlook Bright.
- Novatek Microelectronics Corp (3034 TT) had reserved Apple (AAPL US) iPhone 16 Display Driver IC (DDIC) for future shipment since 3Q24F when qualification past.
- Novatek’s outlook is increasing to about 1~5% in 1Q24F, remarked a higher quarter demand than 4Q23.
- It could be a low season in 2Q24F because the rush order shown up around Chinese New Year.
10. 2023 PC Unit Shipments Disappoint While Smartphone Fared Better Than Expected
- For 2023, Smartphone unit shipments amounted to 1.17 billion units, a 3.2% YoY decline, far better than we expected at the beginning of last year.
- For 2023, PC unit shipments amounted to 241.8 million units, a 14.8% YoY decline, worse than expected. Last time annual shipments fell below 250 million units was in 2006.
- The weaker than anticipated PC TAM is a headwind for Intel heading into earnings and Q124 guidance on January 25
This weekly newsletter pulls together summaries of the top ten most-read Insights across Tech Hardware and Semiconductor on Smartkarma.
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1. Taiwan Dual-Listings Monitor: TSMC Contraction Continues; ASE & Chunghwa at Historically Rare Levels
- TSMC: 7.7% Premium — Spread Has Fallen Further, Likely Can Short a Bit Further
- ASE: Drops to 5.1% Premium — Can Consider Going Long at Current Level Due to Maxed Headroom & ASE’s Strong Advanced Chip Packaging Story
- CHT: Trading at -0.9% Discount — Good Level to Long the Spread, Rare Discount
2. Fujitsu (6702 JP): Horizon Scandal Blows Up
- The UK Post Office “Horizon Scandal” has blown up, putting Fujitsu’s computer system failure on the front pages and on the agenda of Parliament and Prime Minister Sunak.
- Fujitsu UK has been awarded £6.8bn in public contracts since 2012. The Justice Secretary is now talking about compensation for the enormous financial and personal damage caused.
- Fujitsu’s share price is coming off a new all-time high reached in December. The amount of compensation and loss of potential future contracts is substantial but uncertain.
3. Semiconductor Events Deserving Your Attention @9/1/2024
- Nanya 12/23 revenues NT$ 3,162 million, +10% MoM, +31.73% YoY. UMC 12/23 revenues NT$ 16,979,226. -9.6% MoM, -18.9% YoY. Samsung Q423 Sales Flat, Op Profit +16% QoQ
- Quintaurius, a RISC-V collaboration between Bosch, Infineon, Nordic, NXP & Qualcomm, launched in Germany
- Intel takes delivery of the first ASML High-NA EUV tool. It’s a great photo opportunity but that’s about as far as it goes
4. Stories Behind the Reported Dec/4Q23 Taiwan Semi/Tech Sales
- Y/Y improvement for LCD panel, 8″/12″ raw wafer, CMOS sensor, GaAs RF, cooling system, design service, and semi equipment and material vendors but y/y deterioration for PC/server and gaming vendors.
- After 9 vendors beating consensus, we might see smartphone IC and RF, semi equipment OEM, and design service vendors in US to report a better than expected 4Q23 sales/earnings.
- After 6 vendors missing consensus, we might see PC/general server IC and niche memory vendors in US to report a worse than expected 4Q23 sales and earnings.
5. TSMC Finishes 2023 With A Flourish
- Q423 revenues amounted to NT$625,529. In US$ terms, using TSMC’s projected exchange rate of 32, this translates to $19.55 billion, a ~13% increase QoQ, and a 2% decrease YoY.
- FY 2023 revenues amounted to NT$2,161.74 billion, down 4.5% YoY. In US$ terms, this amounted to $69.1 billion, an 8.8% decrease YoY and the first such YoY decrease since 2009
- While we foresee Q124 revenues being down 5-10% QoQ, we expect full year 2024 revenues to grow in the range of 5-10% YoY.
6. Mobileye Guides Down; Automotive Inventory, Memory Strength, and Marvell
- Mobileye surprised markets with an extensive guide down to their results.
- Shares reacted poorly, but at first blush, it makes sense given the magnitude of the guide. Let’s walk through the release.
- It starts with inventory, and it’s clear their customers have too much inventory.
7. Taiwan Tech Weekly: Dell Outperforms Taiwan PC Names; TSMC Results Coming After Taiwan Election
- Taiwan PC names have been the top losers over the recent period, after having previously been the top winners. Our Long Dell vs. Short Acer trade is doing well.
- Nanya Tech was a top loser, falling along with its international Memory peers. Nevertheless, we note it underperformed Micron and SK Hynix. We continue to prefer SK Hynix for Memory.
- CES is happening now and will be wrapping up Friday. We like our Dell vs. Taiwan PC names through the CES event. TSMC will be reporting results January 18th.
8. Rohm (6963 JP): Quantum Process Optimization
- Use of quantum technology expected to improve electrical die sorting (EDS) performance by several percentage points.
- Collaboration with Quanmatic aims at full-scale introduction in April, the first month of FY Mar-25.
- Buy for long-term growth led by power semiconductors with margin expansion from efficiency gains.
9. Apple Partner Hon Hai Reports Weakest December Revenue In Years, But EV Growing; Buying Opportunity
- Hon Hai released its December revenue figures on January 5th; Revenue came in lower than any other December in recent history.
- Hon Hai’s MIH EV consortium is showcasing solutions at CES 2024 this week in Las Vegas. In Taiwan, the Luxgen expects 9,000 customer deliveries for its ‘n7’ EV by June.
- Hon Hai is trading at less than 5x forward 2025E PE; and on a trailing basis one of the lower EV/EBITDA’s in history. Latest share drop is a buying opportunity.
10. Ferrotec (6890 JP): Return to Growth Led by Power Semiconductor Substrates
- Ferrotec shares have dropped by a third since last July and are now selling at 8.2x EPS guidance and 0.6x book value.
- Sales and operating should start to recover in 2H of FY Mar-24, led by power semiconductor substrates.
- Buy for the upturn in the semiconductor cycle and capacity expansion in Japan, China and Malaysia. No significant damage from the Noto Peninsula earthquake has been reported.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Tech Hardware and Semiconductor on Smartkarma.
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1. Micron Makes Surprise Settlement With Fujian Jinhua. But Why?
- After a trial that dragged on for close to five years, the US DoJ case against Fujian Jinhua heard closing arguments in September 2023
- Co-Defendant UMC already settled with Micron over two years ago. The two companies have since gone on to further expand their business relationship
- The surprise settlement with Fujian Jinhua may help smooth the path for Micron’s troubled operations in China
2. Semiconductor Outlook 2024: AI’s Adolescence
- The year 2023 began with a significant downturn in the semiconductor market.
- Significant capacity additions were brought on after the historic shortages due to COVID-19, and then demand wobbled as interest rates quickly rose.
- Supply outpaced demand, and the market turned into a period of oversupply.
3. Ushio (6925 JP): Tie-Up with Applied Materials Adds to Long-Term Potential
- Ushio has tied up with Applied Materials (AMAT) to develop lithography systems for package substrates using AMAT’s Digital Lithography Technology.
- This should keep the focus on Ushio’s more advanced technologies (which also include EUV mask inspection light sources) and its potential to rebound with the semiconductor cycle.
- The shares have dropped back 10% since mid-December, providing an entry point. 3Q results are scheduled to be announced on February 9.
4. Misumi Group (9962 JP): Heads up for 3Q Results in Late January
- The gradual upward trend in monthly sales, which has continued through November, has further to go in our estimation.
- At 22x EPS guidance for FY Mar-24, the shares are at the low end of their 5-year P/E range.
- Guidance remains unchanged. 3Q results are due to be announced at the end of January
5. UMC (2303.TT; UMC.US): 1Q24F Outlook, the Wafer Demand of MediaTek and Samsung.
- The wafer demand outlook for 1Q24F should be around flat, but ASP (Average Selling Price) is expected to decline by negative mid-single digits.
- Compared to 4Q23, Mediatek Inc (2454 TT)‘s foundry demand is larger and Samsung Electronics (005930 KS)‘s foundry demand is downsized in 1Q24F.
- United Microelectronics Corp (2303 TT) and Intel Corp (INTC US) are currently discussing the allocation issue of 12nm capacity.
6. Mobileye Profit Warning Is A Harbinger Of Gloom As Q423 Earnings Loom
- From a growth forecast of >20% YoY just two months ago, 2024 is now pegged as a low-to-no growth year
- This will be a big negative for the likes of Infineon, ST Microelectronics, NXP, Globalfoundries and HH Grace, among others.
- Our anticipated gloomy Q423 earnings season just got a whole lot gloomier
7. ‘Clippy’ Having the Last Laugh? Microsoft’s Design Change to Drive AI PC Adoption; Dell Trade Update
- On January 4th, Microsoft announced a design change for PCs whereby a new physical key will be added to PC keyboards; the Microsoft Copilot key.
- Microsoft Copilot will become a must-have for companies in our view. Initial Copilot capabilities can dramatically improve worker productivity and this should help drive AI PC upgrades for the industry.
- CES 2024 Jan 9th – 12th will showcase AI PC models sporting Intel’s Core Ultra processors and Microsoft’s new Copilot key. We also update our Dell vs. Taiwan PCs trade.
8. Vanguard (5347.TT): 1Q24F Revenue Might Decline ~10% QoQ.
- Vanguard Intl Semiconductor (5347 TT) is likely to see that there could be a decline of around 10% QoQ in 1Q24F.
- In terms of revenue contribution, Taiwan, US, China, Europe, and Japan account for approximately 40%, 20%, 15%, 15%, and 10% respectively.
- Taiwan Semiconductor (TSMC) (2330 TT) may give up technology development at 40nm and above and transfer them to Vanguard.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Tech Hardware and Semiconductor on Smartkarma.
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1. TSMC (2330.TT; TSM.US): The 1Q24F Revenue Outlook and the Progress for Intel, MediaTek and Samsung.
- Taiwan Semiconductor (TSMC) (2330 TT)‘s revenue outlook for 1Q24F is expected to show a decline of around negative high single digits QoQ.
- Intel Corp (INTC US) aims to receive x86 CPU technology from TSMC 3nm in 1H24F.
- Mediatek Inc (2454 TT) plans to utilize 3nm technology for manufacturing smartphone SoCs in 2H24F, which will narrow the gap with Qualcomm Inc (QCOM US).
2. TSMC (2330.TT; TSM.US): If Intel Was Split Up, What Impact Will It Have on the Foundry Industry?
- We assume that Intel’s current business model is unable to fully meet the manufacturing needs in that case.
- As for the Intel Foundry Business, we believe that there is potential upside for growth.
- If Intel was doing great in Wafer Manufacturing Business, then why does it have to consider splitting up?
3. No Sign of Selling Advanced Scanners by ASML to China Customers, Implications
- The oversupply of 8″/12″ mature technology and price war especially within China for the next 5 years is inevitable, especially negative for SMIC and Hua Hong Semi.
- Production moving out of China semi demand might increase to 65-70% in next five years to benefit Globalfoundries, UMC, Vanguard, Powerchip mitigating impacts from rising domestic replacement in China.
- By building up in-house fabs, Huawei and HiSilicon supply chain vendors will be benefited the most like semiconductor equipment, material, fab construction, CoWoS interposer, and CoWoS packaging vendors.
4. Taiwan Dual-Listings Monitor: TSMC Premium at a Decent Short Level; ASE Short Interest Declining
- TSMC: 10.5% Premium — Still a Good Level to Short the Spread
- UMC: Trading at -1.1% Discount — Uncompelling, Wait for Deeper Discount
- ASE: 8.8% Premium — Still Wait for Lower Levels Before Going Long
5. KYEC (2449.TT): The Revenue Outlook Will Be an Upward Pickup in 2024F.
- It’s a greater chance that there will be an upward pickup in 2024F revenue for King Yuan Electronics Co, Ltd. (2449 TT), but the magnitude is hard to predict in 1H24.
- It is expected the revenue to decline by approximately -5% in 1Q24F.
- However, the demand for CoWoS at a corporate level is expected to increase by about 10% in 2024F .
6. MediaTek (2454.TT): The Revenue Is Likely Upside Around 10% QoQ in 1Q24F.
- For the upcoming revenue outlook, MediaTek Inc (2454 TT) is likely to reach an upside of around 10% QoQ in 1Q24F.
- MediaTek plans to release 12 million units of the Dimensity 9000 series in 2024F.
- Mediatek’s target markets include China, India, and Southeast Asia, with China remaining the primary market of focus.
7. Quantum Solutions (2338 JP): Look Again at Small Cap Play on AI Servers and Web-3.0 Gaming
- Quantum Solutions has given up 63% of its recent gain but has more NVIDIA GPU related orders in the pipeline. Keep an eye on the stock and the news flow.
- The recent upward revision to sales and profit guidance has been followed by the announcement of a capital and business tie-up with Hajime Tabata’s JP Games.
- The addition of Web-3.0 gaming to distribution of AI servers and Arm-based edge computing hardware could change the nature of the investment.
8. Micron. Earnings Puts & Takes. Take Your Pick
- Q1FY24 revenues of $4.7 billion, up 18% QoQ and up 16% YoY, and $100 million above guided high end, as already flagged on November 28
- Q2FY24 guidance of $5.3 billion, a ~13% increase QoQ. This will once again be loss-making quarter to the tune of an EPS loss of 28 cents.
- Things are looking up for Micron, but 2024 will still be a “recovery” year.
9. Power Semiconductor Specialist Will Benefit from AI Yet Lagging Key Customers’ Share Price Rallies
- UPI Semi is a specialist designer of electronic components and semiconductors for power management. Power management is a key performance factor for AI devices.
- UPI’s clients include most of the world’s largest leading technology companies for semiconductor distribution and AI products.
- UPI shares have lagged the strong performance of its clients — We see opportunity for UPI to now Outperform.
10. Delta Taiwan Vs. Thailand Monitor: Parent Could Sell More of Its Stake; Thai 50x PER Vs. Taiwan 20x
- Delta Thailand vs. Taiwan valuation differential has returned to an historically extreme level.
- For 2024E & 2025E growth expectations continue to be similar for the two companies, yet Delta Thailand’s FY2024E PER is 50x while Delta Taiwan’s is 20x.
- We see substantial relative value in Delta Taiwan and expect likely reversion of relative valuation due to latest return to historically extreme mismatch.
1. TSMC Chairman to Retire, + or — Impacts to Shareholders
- Chairman 69 years old Dr. Liu will retire and 70 years old CEO Dr. Wei will step up. What story do we believe? Will TSMC to regain its strong outperperformance?
- Positive impacts: we expect Arizona fab equipment move-in and ramp up might be further delayed if no subsidies are granted; two teams competing to one voice/team/direction.
- Three risks: 1. Dr. Wei at his age of 70 without a strong management backup; 2. Dr. Wei might make a wrong decision deeply; 3. absolute power corrupts.
2. The First Semi Micron to Guide 1Q24; Conservative Now but Likely Raise Later
- Driven by stronger PC/networking DRAM sales, Micron reports 5% stronger 4Q23 sales, 10-13ppts q/q margin improvement and 34% y/y decline in MOI to 5.2 months;
- Micron guides 1Q24 sales growth 8-16% q/q and 38-49% y/y and gross margin of 12%, beating Bloomberg consensus estimates by 6ppts;
- Rooms to raise: 1. 1Q24 sales of 18% q/q likely; 2. Turning profits sooner than expected; 3. +Free cash flow in 2024; 4. HBM3E for GH200/H200 to improve mix, margin.
3. Intel’s AI Everywhere In New York
- Intel’s “AI Everywhere” event turned out to be little more than last minute launches client and server products promised for 2023
- While these products have little new in the way of ground-breaking AI hardware, the entire event was infused with AI marketing to the highest degree
- Ostensibly Intel’s great hope in AI hardware acceleration, Gaudi, featured solely as a last minute gimmick announcing that Gaudi3 was “out of the fab and into the lab”. Yawn!
4. Marvell Industry Analyst Day
Marvell reported earnings recently, and I wanted to mention that at least before I continued onwards because that is a good context-setting event for the industry day.
Revenue exceeded expectations, but the mix beneath the results was illustrative.
- Datacenter revenue grew 20% QoQ, cloud over 30% QoQ; while networking was strong, they guided for a 40% QoQ decline, consistent with networking OEM results.
5. Micron Analysis, Industry Takeaways: Memory Market TAM New Highs into 2025; SK Hynix Trade
- Relative Value Trade in Micron Has Worked Since Our Last Piece; Results Blow Away Expectations
- Memory Pricing Improvement Continues, Management Expects Pricing Increases Through Calendar Year 2024 and 2025
- We Remain Structurally Long Memory; Now See Relative Value in SK Hynix
6. 2024 High Conviction: Low Semiconductor Growth
- Objective Analysis has released its 2024 semiconductor forecast, calling for growth of below 5%
- Other forecasters currently call for 11% to 17% growth, which would require another super cycle to accomplish
- We do not see any event that will drive a 2024 super cycle, even with the current rapid adoption of AI in the data center
7. Sox Index Broke New High; Nov US SEMI Equipment and Oct SIA Sales Showed Y/Y Improvement
- As expected, SOX index broke a new high, in line with Nov US semi equipment billings and Oct SIA/WSTS global sales y/y improvement.
- SEMI reports Nov front/back end equipment billings decline of 9% and 11% y/y, respectively, which was improved from 14% and 17% y/y decline in Oct, implying recovery intact.
- WSTS/SIA earlier reported Oct sales of US$46.6bn, up 3.8% m/m and down only 1% y/y (vs. 16% decline in June), suggesting semi sales y/y improvement and clearly pass the trough.
8. Why Subsystems Now
Semicap is strong, Subsystems are not. That will change.
- I think Mks Instruments (MKSI US), Ultra Clean Holdings (UCTT US), and Ichor Holdings (ICHR US) are likely good 12+ month longs as NAND spending increases, and they blow out estimates for multiple quarters in a row.
- The factor-driven size difference drives the opportunity, and they should benefit well on a relative basis next year.
Weekly Top Ten Tech Hardware and Semiconductor
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1. TSMC’s November Revenue Declines 15.3% MoM.
- Revenue for November 2023 was NT$206.03 billion, a decrease of 15.3% MoM, and down 7.5% compared to the year ago period.
- Based on the guided midpoint, December revenue will show a further 20% MoM decline
- We estimate FY2023 revenues of $68.8 billion, down 9.4% YoY.
2. Taiwan Dual-Listings Monitor: TSMC Premium at an Extreme; ASE Dropping Lower and Lower
- TSMC: 10.4% Premium — Decent Level to Short the Spread At
- ASE: 6.2% Premium — Wait for 5% as the Level to Go Long the Spread
- UMC: Trading at 0.8% — Wait for 1.5% or Higher
3. MediaTek (2454.TT): The WiFi 7 Chip Competition Is Likely to Become Fierce in 2024.
- The WiFi technology was dominated by Broadcom Corp Cl A (BRCM US), but Mediatek Inc (2454 TT) has to break into the PC and smartphone markets in 2024F.
- There are speculations that Apple might use MediaTek’s WiFi 7 solution in 2024F or consider MediaTek as a potential chip provider.
- MediaTek will be using 6nm technology for WiFi 7, replacing the current 28nm technology used for WiFi 6.
4. Rohm (6963 JP): Government Subsidy for Power Device Project with Toshiba
- Rohm’s share price was up 6% on Friday, December 8, on the news that the Japanese government will subsidize its collaboration with Toshiba in power semiconductors.
- The subsidy will amount to one-third of the ¥388.3 billion yen the two companies plan to invest in Silicon Carbide and Silicon devices for the electric vehicle and other industries.
- Rohm hit bottom on October 31, management cut FY Mar-24 guidance on November 1 and the market is now looking to recovery. Toshiba will be delisted on December 20.
5. AMD. With FY23 Revenues Set to Fall ~4% YoY, Is The Party Over?
- AMD’s resurgence against a dominant Intel saw the company grow annual revenues >4x between 2017 and 2022
- FY 2023 revenue is likely to be down roughly $1 billion or ~4% YoY.
- We expect a combination of renewed Data Center market share growth plus a grand entrance into the AI acceleration segment will restart the party all over again in 2024.
6. Taiwan Tech Weekly: AI Plays Weak Despite Strong Taiwan Tech Market Performance
- Overall, it was a strong week for Taiwan Tech. TSMC and Mediatek showed strong performances, as well as key names we like such as Yageo and Himax.
- AI-Related Taiwan plays showed relative weakness. This weakness interestingly happened during a week when NVIDIA Corp (NVDA US) performed well.
- According to insight provider Patrick Liao, MediaTek WiFi 7 chip competition is likely to become fierce in 2024.
Weekly Top Ten Tech Hardware and Semiconductor
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1. Taiwan Tech Weekly: TSMC Extending Lead Vs. Samsung with 3nm Tech; Hon Hai Result Positive for Apple
- Is TSMC Leaving Samsung in the Dust with its New 3nm Process Technology?
- Our Pick Himax a Top Loser… Apple Lens Supplier, Yageo Peer, and Taiwan AI Chip Designer Top Winners
- Positive Sign for Apple Revenue — Hon Hai November Revenue Higher Than Expected, Guides for Better December
2. MediaTek (2454.TT): Rebounding from Cycle Bottom.
- Mediatek Inc (2454 TT) has rebounded from the bottom of the cycle, and it will be able to reach more than 20% YoY in 2024F.
- The demand for 4G and 5G Smartphone SoC will be split around 55/45 by shipment volume, with Taiwan Semiconductor (TSMC) (2330 TT) being the primary supplier for MediaTek.
- The MediaTek Dimensity 6000 series will be the new flagship product line in 2024F.
3. Semiconductor Events Deserving Your Attention @6/12/23
- Global semi sales for October 2023 amounted to $46.6 billion, an increase of 3.9% MoM but still down 0.7% compared to the year-ago period
- Global semiconductor equipment billings amounted to $25.6 billion in Q323, down 11% YoY and down 1% QoQ
- China is on track to maintain the global #1 semi WFE spender slot for the fourth year in a row and by the widest margin ever.
4. Hamamatsu Photonics (6965 JP): Buy into Current Weakness
- The shares are down 27% from their May high, largely discounting excessive inventory and a decline in profits that is likely to continue through next March or June.
- Inventory adjustment, the revival of semiconductor, factory automation and medical related demand, plus the leveling off of depreciation, should enable a return to growth after that.
- Projected valuations are at the low end of their 10-year ranges. Buy into the current weakness, keeping in mind that 1Q results are likely to be weak.
5. Cerebras. G42 Deal Is A Life Saver. Or Is It?
- ~$900 million supercomputer deal is off the charts compared to all previous deals
- Without the deal, Cerebras would likely soon have run out of cash. With the deal, Cerebras is effectively working as a supercomputer contractor for G42 for the next several years
- Three supercomputers to be built in the US, we suspect the remaining six to be built in the UAE. That’s likely to raise some eyebrows.
6. Stories Behind the Reported Nov 2023 Taiwan Semi/Tech Sales
- More clear y/y improvement for 8/12″ raw wafer, WiFi IC, GaAs RF/VCSEL, and memory vendors but more y/y deterioration for OLED/LCD driver, LCD panel, design service, equipment/materials, and foundry vendors.
- GaAs RF and gaming GPU card vendors showed very impressive y/y sales growth of 54% and 63%, respectively. ABF substrate vendors showed the weakest sales decline of 34% among all.
- Except A Data (+2.5% m/m) and Phison Electronics (+5.6% m/m) might see stronger share price to reflect stronger November sales, most of others see good/bad news in the price already.
7. GUC (3443.TT): Why the Company Did Show a Bit Cautious Attitude with the Market Price?
- On December 8th, GUC reached its daily limit at the closing price, but the company did not consistently demonstrate an agreeable attitude.
- The “AI” is an explicit knowledge for today, while GUC is a company of project based.
- GUC’s monthly revenue decreased by 22.15% YoY in November 2023.
Weekly Top Ten Tech Hardware and Semiconductor
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1. Semiconductors. The Downturn Is Over. Or Is It?
- Global semiconductor sales have increased MoM for seven months in a row. PC & Smartphone unit shipments have bottomed and are on the rise. Memory has bottomed.
- Silicon wafer inventories are piled high, ASML, TEL facing down zero growth in 2024, foundry utilisations are (mostly) in the doldrums with further ASP cuts looming on the horizon.
- Multiple data points suggest we’ll still be talking about this downturn well into 2024
2. TSMC (2330.TT; TSM.US): 2024 High Conviction for Upside >15% YoY
- TSMC is expected to experience growth of ~15% YoY in 2024F.
- TSMC’s N3 is expected to dominate the market in 2024F, with applications in CPU, GPU, smartphone SoC, and more.
- We also estimate that the N2 pilot run will begin in 4Q24.
3. TSMC: Defensive AI Play in Long Upward Re-Rating Trend?
- We believe TSMC represents defensive exposure to AI for investors concerned that many other AI-related stocks’ valuations may be too high.
- While one may think TSMC seems too obvious as a play, we note that the stock is up only 4.5% over the last six months.
- We view TSMC as trading at an inexpensive valuation; even a cheap valuation should our hypothesis that the stock is structurally re-rating upwards turn out to be true.
4. Nvidia’s China Problems, Applied Materials, and Microsoft’s Accelerators
- Nvidia’s quarter was surprising to me because it was boring. There were a few incremental pieces, but the big news was everything to do with China.
- As you know, there was another round of export restrictions with a myopic focus on AI Accelerators.
- This impacted results and the outlook.
5. Memory Monitor: Micron Expects 2025E to Be Best-Ever for Memory; But Valuations Have Run Up a Lot
- Memory names have rallied strongly, with Nanya Tech outperforming since the start of November.
- DRAM bottomed and NAND flash prices have jumped. Micron says that 2025E could be a record year for the Memory industry.
- High valuations make near-term upside for Memory names uncertain. For Long/Shorts one can consider Long Micron vs. Short SK Hynix or Long Micron vs. Short Nanya Tech.
6. Micron. The Rally Is Premature
- Improving outlook with Q1F24 revenue forecast slightly above the high end of the guided range
- 2024 is being positioned as a “recovery year”, helping reset investor expectations about the nature and speed of the recovery
- Micron’s share price typically rallies strongest into record revenue years. 2024 will not be a record revenue year. As such, we think the present rally is premature.
7. Taiwan Dual Listings Monitor: Spreads Generally Trading in the Middle of Their Ranges
- TSMC: 8.2% Premium — Still Best to Wait for Better Levels
- ASE: 6.4% Premium — Wait for 5% as the Level to Go Long the Spread
- ChipMOS: -0.5% Discount — Stay Long the Spread if You Started at -2.0%
8. UMC (2303.TT; UMC.US): There Is a Greater Chance for a Rebound in 2Q24F.
- Although it is still early to determine the extent of the utilization rate that could be reached in UMC for 2Q24F, there is a greater chance for a rebound.
- UMC’s high-end technology, specifically 28nm, has a utilization rate of over 80% in 4Q23F.
- MediaTek is UMC’s largest client, dominating in WiFi, TV SoC, Bluetooth, and other areas.
9. Taiwan Tech Post-Earnings Takeaways: Semis Margins Underestimated? Hardware 2024E Forecasts Ramped
- Taiwan Tech companies beat analyst expectations by a high rate in the latest quarter
- Semiconductors: Consensus could be underestimating a margin rebound for 2024E
- Hardware aggregate forecast earnings growth increased significantly for 2024E as compared to just three months ago
10. Taiwan Tech Weekly: Taiwan AI Top Losers; Dell to Provide PC/Server Color; Post-3Q Results Takeaways
- Taiwan AI Plays Top Losers Recently, Dell Results Coming Today U.S. Time to Provide Color for PCs and Servers
- Taiwan Tech Post-Earnings Takeaways: Semis Margins Underestimated? Hardware 2024E Forecasts Ramped
- Nanya, Yageo Top Gainers; We Rate the Stocks Outperform and Structural Long Respectively
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1. As Expected from Our Earlier BOM/CoWoS Analysis, Consensus to Raise Nvidia Estimates Inevitably
- Nvidia reports/guides a better than expected 3Q/4Q23 sales, margin, and EPS on stronger AI GPU sales growth of nearly 3x.
- Nvidia reports a healthy 3.04 MOI, down 5% q/q and down 37% y/y and contributes nicely to account for 9% of TSMC sales.
- In spite of concerns on good news priced in, seasonal weaker 1Q24, and MI300X/ASIC alternative AI solutions, we expect more raise to come in 2024-2025E.
2. NVIDIA. Another Beat & Raise, Yet Shares Slide. But Why?
- Q3FY24 revenues of 18.1 billion, up 34% QoQ and up a staggering 206% from the year ago period. It was also ~$2 billion higher than the guided number
- NVIDIA’s current quarter forecast was for a further revenue raise of almost $2 billion with gross margins staying roughly flat at 74.5%
- Share price reaction was negative, closing down 2.5% the following day. But why?
3. A Turnaround Story for Intel by Accelerating 3nm Outsourcing to TSMC?
- By offering 15k and 30k/m 3nm capacity by 4Q24/4Q25 to Intel, TSMC will see Intel becoming one of its top 3 customers by accounting for 12% of TSMC 2025 sales
- By leveraging 3nm outsourcing, Intel will have incremental sales/capacity growth of 19-20% per year by accounting for 28%/44% of sales in 2024/2025, beating consensus’ 14%/9% y/y sales growth for 2024/2025.
- We estimate 30-35% 5 years EPS CAGR for Intel, driven by TSMC’s 2/3nm foundry support, lower cost and process R&D, lower capex and depreciation cost, and AI PC CPU launch.
4. Nvidia Still Cheap: Enterprise AI Next Driver to Kick-In; Adjusting Our Taiwan AI Plays Short Hedge
- Nvidia’s street-beating results indicate strong growth to continue; Generative AI demand will next expand from startups, consumer internet, and cloud service providers increasingly to enterprise AI-linked demand.
- Nvidia is not expensive despite recent market concerns. We believe Nvidia can meet or even beat its current calendar year 2024 earnings expectations and forward PE is cheap.
- Short a basket of Taiwan AI concept stocks vs. a core Nvidia long position rather than take profits in Nvidia. We have swapped one Taiwan stock in our short basket.
5. OpenAI Boardroom Battle: Safety First
- OpenAI was founded in 2015 by investors, including Elon Musk, Reid Hoffman, Peter Thiel, AWS, and YC Research.
- The goal was to pursue Artificial General Intelligence (AGI) safely for the benefit of humanity.
- There was an initial pledge of $1 billion, but the money that came in was $100 million from Elon Musk and $30 million from Open Philanthropy.
6. TSMC (2330.TT; TSM.US): N2 Technology Is Scheduled in 2025F.
- TSMC’s N2 technology is currently undergoing verification for a 256Mb SRAM, and it will be implemented in Hsinchu and Kaohsiung, Taiwan.
- The TSMC N3 technology capacity was 65kwpm in 3Q23, and the current version is N3B, which were adopted by Apple for the iPhone 15 this year.
- Both N3E and N2 only have 20 layers EUV masks.
7. Taiwan Tech Weekly: Nvidia Results Today; Taiwan Market Surged But Why It Might Be Still Underowned
- Nvidia Results Today U.S. Time — Taiwan Market Surged Recently on Improving AI/Semiconductor Expectations and Potential for Easing U.S.-China Tensions.
- Taiwan: Underowned, Yet Gaining on Peers. Our Fellow Insight Provider Analyzes Why Taiwan Might Still Be Underowned.
- Asia Geopolitics: Following Biden-Xi Meeting, Asia Is a Safer Place For Now.
8. Taiwan Dual Listings Monitor: TSMC Premium Slumps; CHT & ChipMOS at Rare Opportunity Levels
- TSMC: 7.4% Premium — Previous Short Has Worked, Now Wait For Better Levels
- ChipMOS: -2.0% Discount — Good Level to Go Long the Spread
- CHT: -1.2% Discount — Good Level to Go Long the Spread
9. Q323 Memory Segment Review, Outlook
- Q323 DRAM revenues amounted to $13.210 billion, up a robust 19.25% QoQ, but still down 27% from the year-ago period.
- In the case of NAND, Q323 revenues amounted to $9.3 billion, up 4% QoQ but down 31.7% YoY.
- All memory players remain loss making. We don’t anticipate a return to black until Q224.
10. What Oct US SEMI Equipment and Sep SIA/WSTS Global Sales Tell Us?
- SEMI reports Oct front/back end equipment billings decline of 14% and 18% y/y, respectively, which was improved from 18% and 24% y/y decline in September, implying early signs of recovery.
- WSTS/SIA earlier reported September sales of US$44.89bn, up 1.9% m/m and down only 4% y/y (vs. 16% decline in June), suggesting semi sales y/y improvement and pass the cycle trough.
- We are positive on SOX INDEX likely to break new high of over 4,000 in six months and expect PC/smartphone/training AI semi and DRAM semi/equipment vendors to outperform in short.
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1. Taiwan Dual Listings Monitor: TSMC ADR Spread at Decent Short Level; UMC ADR Short Interest Soaring
- TSMC’s ADR premium is 10.4%, this is a decent level to short it based on the historical trading range.
- UMC’s ADR premium is near a good level to short the spread but one should wait for it to rise above 1.5% in our view.
- UMC ADR short interest continues to trend higher; TSMC ADR short interest continues to fall.
2. Takeaways After Global Semi Equipment Model Updated and Our View on 2024/2025
- Takeaways: 1. Semi equipment vendors beat 4Q23E; 2. China and DRAM customers stronger ; 3. Margin stable due to lack of depreciation; 4. Top four controls over 90% of shares;
- More takeaways: 5. Semi equipment companies’ share price performance should lag behind foundries, foundries should lag behind fabless customers; 6. China semi equipment vendors outperforming global peers on local replacement;
- Estimating a flattish global semiconductor equipment sales growth for 2023 and 2024 but expecting a double digit y/y sales growth of 17% for 2025 and 10% for 2026.
3. Semiconductor Events Deserving Your Attention @ 13/11/23
- TSMC Reported October revenues of NT$243.20 billion, an increase of 34.8% QoQ and an increase of 15.7% YoY.
- According to IDC, worldwide smartphone shipments amounted to 302.8 million units in Q323, still down 0.1% YoY, but up ~14.1% sequentially.
- Silicon wafer area shipments for Q323 amounted to 3,010 MSI, down 19.5% YoY & down 10% QoQ. Why are wafer shipments declining when key end markets are in recovery mode?
4. Silicon Wafers. SUMCO Sounds The Alarm As Inventory Continues To Climb
- Global silicon wafer area shipments declined 10% QoQ in Q323 but customer inventory remains at historical highs and is showing no signs of declining
- SUMCO’s Operating Profit forecasted to fall by ¥8.6 billion QoQ in Q423
- The company vowed to make “substantial” production cuts in a bid to bring their inventory situation under control.
5. Taiwan Tech Weekly: AI Names Rally But Nvidia Long/Short Still Working; Hon Hai & Asustek Take-Aways
- Earnings season wrapping up — Hon Hai & Asustek recently reported… Some AI names rallied hard but our Nvidia L/S trade still working
- Hon Hai’s margin expansion story is finally starting to be realized. Stock’s perceived political risk could be an opportunity.
- How Asustek plans to take the lead globally in AI PCs; Gaming PCs will be the first key battleground. MSI could be an interesting play on Asustek’s recent strong performance.
6. Screen Holdings (7735 JP): FY Guidance Up, 2H Guidance Down
- The share price has risen by more than 20% in the past month as 1H results beat guidance, FY guidance was raised and the yen weakened.
- The 2-for-1 stock split may also have attracted retail investors. But the new FY guidance implies lower 2H guidance.
- The outlook is for higher but volatile sales and profits. Valuations are reasonable but not compelling. Wait for a pullback.
7. Semiconductor Cycles: Industrial and EVs
- This earnings season, Industrial semiconductor demand has been the biggest incremental softening in end market demand. That’s not surprising.
- I have been talking about the FIFO (First-In, First-Out) cycle, and the only two remaining segments that have not had a meaningful correction are Industrial and Automotive.
- We are now seeing the beginning of Industrial weakening.
8. How Asustek Plans to Take the Lead Globally in AI PCs; Gaming PCs First Key Battleground
- Asustek reported results on November 13th that beat analyst expectations thanks to a major margin rebound. The stock soared post results.
- Asus plans to be the first company globally to release an AI PC, leveraging extensive AI R&D across different devices as well as its leading market share in gaming PCs.
- However, gaming PC competitor MSI is already moving fast; Shows how gaming PCs are likely to be the first AI PC battleground. Long Asustek, remains preferred over Acer.
9. Silergy (6415.TT): Silergy Expect to Grow Slightly in 4Q23F.
- The inventory adjustment of consumer electronics products is nearing completion and industrial products will end later.
- Silergy Corp (6415 TT)‘s short-term growth momentum comes from the demand of new smartphone, while its long-term growth momentum comes from the automotive, new energy and high-performance computing area.
- In 1H24, the pro forma gross profit margin can be maintained at around 50%.
10. Hon Hai’s Margin Expansion Story Finally Starting to Be Realized? Results Imply Yes
- Hon Hai beat expectations yesterday when it reported thanks to higher than expected margins. Gross margin rose to its highest level since 2018, hitting 6.7%.
- The company has maintained its 2025E 10% gross margin target and implied that 2024 will see significant margin improvement as new higher margin businesses ramp up revenue contribution.
- Two key market concerns: News of Chinese government investigation and political risk given Mr. Gou running for president. Company said operations continue as normal. Hon Hai remains a Structural Long.
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