Weekly Top Ten Tech Hardware and Semiconductor – Nov 19, 2023

1. Taiwan Dual Listings Monitor: TSMC ADR Spread at Decent Short Level; UMC ADR Short Interest Soaring

By Vincent Fernando, CFA, Zero One

• 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.

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2. Takeaways After Global Semi Equipment Model Updated and Our View on 2024/2025

By Andrew Lu

• 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.

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3. Semiconductor Events Deserving Your Attention @ 13/11/23

By William Keating, Ingenuity

• 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?

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4. Silicon Wafers. SUMCO Sounds The Alarm As Inventory Continues To Climb

By William Keating, Ingenuity

• 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. 

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5. Taiwan Tech Weekly: AI Names Rally But Nvidia Long/Short Still Working; Hon Hai & Asustek Take-Aways

By Vincent Fernando, CFA, Zero One

• 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.

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6. Screen Holdings (7735 JP): FY Guidance Up, 2H Guidance Down

By Scott Foster, LightStream Research

• 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.

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7. Semiconductor Cycles: Industrial and EVs

By Douglas O’Laughlin, Fabricated Knowledge

• 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.

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8. How Asustek Plans to Take the Lead Globally in AI PCs; Gaming PCs First Key Battleground

By Vincent Fernando, CFA, Zero One

• 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.

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9. Silergy (6415.TT): Silergy Expect to Grow Slightly in 4Q23F.

By Patrick Liao

• 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%.

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10. Hon Hai’s Margin Expansion Story Finally Starting to Be Realized? Results Imply Yes

By Vincent Fernando, CFA, Zero One

• 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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