Weekly Top Ten Tech Hardware and Semiconductor – Feb 11, 2024

1. Taiwan Tech Weekly: TSMC Sales Ahead; Display Driver Growth Reversal; AI Names Keep Flying

By Vincent Fernando, CFA, Zero One

• Latest Performance: Taiwan AI Names Keep Flying; ASE & Mediatek Lose Steam After Reporting
• Largest Display Driver Maker in the World’s Guidance Implies Growth Reversal Coming in Feb & March
• TSMC and Samsung Will Keep Their Most Advanced Chipmaking at Home

2. Intel’s UMC Partnership Is A Big Deal. For UMC.

By William Keating, Ingenuity

• UMC’s Q423 results in line with expectations. Q124 guidance, down 2-3% QoQ, demonstrates ongoing headwinds for foundry
• Intel, UMC foundry partnership helps the latter overcome their 14nm issues while giving them bargain basement access to US manufacturing capacity 
• If Intel could have developed and deployed the proposed 12nm specialty process on their own, they would have….

3. SMIC (981.HK): The GM Reaches a New Low of 9-11% in 1Q24F, Despite Revenue Growing by 2% QoQ.

By Patrick Liao

• The 1Q24F outlook is still showing a decline, with a slightly increase in revenue of 2% QoQ. However, the GM is expected to decrease to 9-11% from 16.4% in 4Q23.
• Management predicts that there will be a double U-shaped recovery in 2024F. Revenue in 2024F is expected to grow annually by mid-single-digit.
• The main areas of growth for SMIC in 2024F will be in mobile phones, smart homes, IoT, and computing.

4. China Semi Foundry: Fierce Competition & Sluggish Rebound In Year Of The Dragon

By William Keating, Ingenuity

• Both SMIC & Hua Hong reported Q423 earnings in line with expectations and both guided Q124 flat to slightly down. SMIC expects FY24 mid single digit growth YoY.
• The downturn has exposed inherent weakness in China’s Semi Foundry segment relative to peers as exemplified by the significant GM disparity
• China’s two leading semi foundries have ~80% domestic dependence. Right now, that’s a headwind

5. Largest Display Driver Maker in the World’s Guidance Implies Growth Reversal Coming in Feb & March

By Vincent Fernando, CFA, Zero One

• Novatek reported over 20% YoY growth for 4Q23 and slightly beat expectations but the latest guidance implies growth to reverse to a sales contraction in the latter part of 1Q24E.
• Gross and operating margins are guided to contract; nevertheless, inventory dropped to one of the lowest levels since COVID and is expected to remain healthy.
• Novatek’s latest results appear to signal that while inventory levels are healthy, the demand growth rebound for display drivers that started in June 2023E could lose steam in 1Q24E.

6. MonotaRO (3064 JP): Slowdown in the Price

By Scott Foster, LightStream Research

• Annual sales growth has dropped from 20% or more in recent years to 12.5% in FY Dec-23. The operating margin ticked up last year, but is basically trending sideways.
• The share price has dropped by 35% since April 2023, bringing the projected P/E ratio down to the bottom of its 10-year range. Buy back in for the long term. 
• Guidance, which is usually accurate, is for 12.7% sales growth this year and an operating margin of 12.5%. Growth should continue in future years with flat or better margins.

7. KLA & LaserTec, AMD, Hyperscaler Capex, SK Hynix, SWKS and QRVO, WOLF, MCHP

By Douglas O’Laughlin, Fabricated Knowledge

• KLA had a rare miss. The guidance was a bit light for the inspection execution machine.
• KLA rarely misses and is by far the best financially managed of the large-cap semicap companies.
• KLA reports Q2 EPS $6.16 ex-items vs FactSet $5.91

8. Novatek (3034.TT): It’s the Low Season in 1Q24F; AI Is Gradually Added to Different Applications.

By Patrick Liao

• 4Q23 surpassed the guidance for revenue, GM, and OPM. 4Q23 EPS reached NT$8.76, compared to NT$10.46 in 3Q23 and NT$6.64 in 4Q22.
• 1Q24F is typically the traditional low season for consumer electronics, and there are fewer working days during the Lunar New Year.
• It is expected that the dividend payout ratio this year will be similar to previous years, which has been higher than 80% in the past few years.

9. Himax: Industry Readthrough for Automotives, Notebooks, and Edge AI Applications

By Vincent Fernando, CFA, Zero One

• Readthrough: Automotive Applications End-Demand — China Market Soft But Touch and Dimming Technology is Expanding
• Readthrough: Panel Makers Constraining Supply in 1Q24 to Protect Pricing
• Readthrough: Customers Are Restocking Notebooks in 1Q24E, PC Replacement Cycle is Coming