1. Taiwan Tech Weekly: Positive Signs for Memory, PC, Smartphones; Key Autos & Display Color This Week
- Last week global heavyweights AMD, Samsung, and Qualcomm delivered good news, including for the Memory, PC, and Smartphone industries. Taiwan company results supported their views as well.
- Looking ahead, Novatek, Asustek, and Himax are set to release in Taiwan. Combined with NXP abroad, this will provide color on display demand, automotive, and servers/PCs.
- A new Chinese memory chip maker just received major government investment, with an IPO of its related company planned.
2. UMC. Automotive Weakness Prolongs Downturn
- Q323 revenues of NT$57 billion, up 1.4% QoQ but down 24.3% YoY. For 2023 YTD, revenues have amounted to NT$167,575 billion, down 20.5% YoY.
- Net income was NT$15.97, essentially flat QoQ. Gross margin came in at 35.9%, also flat QoQ. Utilisation for the quarter was 67%, down from 71% in the prior quarter.
- Utilization set to further decline to low 60% levels in Q423, the lowest since the downturn began.
3. GlobalFoundries Pops On Q323 Earnings. But Why?
- Q323 revenues of $1.85 billion, flat sequentially but down 11% YoY. Net income was $249 million, up 5% sequentially but down 26% YoY.
- At a midpoint of $1.85 billion, forward guidance is once again flat sequentially. Overall it was a solid report with guidance slightly better than UMC delivered last week.
- Despite the solid quarter, the company’s outlook for 2024 was bleak with a 50% CapEx cut, LTAs under mounting pressure & ominous-sounding LTA “True Up” on the horizon.
4. HHGrace. Yikes! Things Just Got Really Ugly
- Revenues of US$568.5 million, down 10% sequentially and down 9.7% YoY, at the bottom of the previously guided range.
- Net loss of $25.8 million compared to a profit of $7.8 million in the previous quarter and $65.5 million in the year ago period.
- With current quarter gross margins in the 2-5% range, HHGrace has flipped from best in class in H123 to the worst in class now.
5. SMIC (SEHK: 00981; SSE Star Market: 688981): Back to Reality
- Reports emphasizing that SMIC fell short of 3Q expectations don’t make much sense. The real test starts this quarter with 7nm smart phone processors for Huawei in mass production.
- Profits are under pressure from low capacity utilization, rising depreciation and continued high investment. Cash flow is adequate. The balance sheet is sound.
- The share price dropped 6.8% on Friday after rising 44% from late August to early November. 4Q guidance points to near-zero operating and net profit. Recovery will take time.
6. SMIC (981.HK): Probably A Double U-Shape Correction for Around 2 Years Until the End of 2024F.
- Based on the some judgments, SMIC consider it will be relatively flat demand in 2024F.
- SMIC took into consideration geopolitical instability and allowed equipment vendors to submit orders in advance.
- Currently, only a few manufacturers are stockpiling smartphones in response to this wave. The overall industry remains relatively stable.
7. Takeaways Post Our Global Foundry Model Updated and Initial View on 2024
- Takeaways post model updated: 1. most foundries miss 4Q23 but y/y decline to decelerate; 2. y/y sales passed the trough but utilization later; 3. wafer shipment down 18-20% in 2023;
- More takeaways: 4. different mix with different price; 5. some are defensive this year, some might have larger upside for 2024; 6. gross margin still falling and capex cut needed.
- Automotive/Industrial lags only not beginning of the fall: Smartphone, pc, consumer/IOT foundry orders might recover earlier than automotive/industrial for 2-3 quarters, resulting fablesses in these area to outperform.
8. Why Is Vanguard Semi Becoming to a Bad Student, Cyclical or Structural?
- Shortage/Oversupply, price hike/cut, automotive/industrial demand and inventory corrections are still cyclical. Gross margin should double from 22-24% now once utilization returning to 100% and no more free wafer by 2025.
- LCD driver foundry is facing a structural competition as China panel customers are building a local supply chain.
- Attractive below NT$70 as: 1. inventory correction should be done by 2Q24; 2. global 8″ foundry sales y/y improvement began 3Q23; 3. closing to cyclical low P/BV of 2.5x.
9. With No Surprise, Diodes Guides Automotive/Industrial Semi Demand to Fall over 20% Q/Q
- Like other automotive/industrial semi vendors, Diodes guides 4Q23 sales of 20% q/q and 35% y/y decline (miss by 21%) and weaker gross margin/operating margin of 35%/7% (miss by 5ppts).
- The company sees 4Q23 sales decline of 20% mainly from 19% of automotive and 26% of industrial customers due to customer inventory cut coupled with year-end distributor inventory management.
- We expect this adjustment for automotive/industrial IDMs to last for at least 6 months and suggest our clients to avoid these names unless valuation becoming attractive.
10. What Early Indicators from the Reported Oct 23 Taiwan Semi Sales
- More y/y improvement (or decline deceleration) for PC/server, power management IC (PMIC), CMOS sensor/touch controller, GaAs RF/VCSEL, gaming GPU card, memory, and foundry vendors
- GaAs RF/VCSEL and gaming GPU card vendors saw very impressive sales growth, driven by new phones introduction and rush orders to use NVIDIA RTX 4090 gaming card for AI training.
- Stronger than expected Oct for TSMC and Gigabyte might drive 4Q sales and near term share price upside; Visera, Andes Tech, and AP Memory might see sales and price downside.
Weekly Top Ten Tech Hardware and Semiconductor
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