Semi stocks plunged after earnings: What's wrong with them?

Recently, semiconductor companies intensively released third-quarterly results, but most of the stock prices plummeted after that.

On October 24, the global analog chip giant $Texas Instruments(TXN)$ released financial results, performance and guidance fell short of expectations, the stock price hit a three-year low;

On October 26, $STMicroelectronics NV(STM)$ released financial results, guidance was was lower than expected, and the stock price hit a new low since the adjustment;

On October 30, automotive chip giant $ON Semiconductor(ON)$ released financial results, guidance missed expectations, and its share price plummeted 21.77%;

On October 31, $Lattice Semiconductor(LSCC)$, the leader of FPGA chips, released financial results, announced results that were lower than expected and the share price plummeted 17.36%.

On the same day, $Advanced Micro Devices(AMD)$ released third-quarter results, guidance fell short of expectations, and its stock price fell nearly 5% after hours.

What's wrong with semiconductors? Not long ago, the industry giants have predicted that the fourth quarter is the industry turning point, ushered in a recovery in 2024. By the end of the month, why do so many giants collapse?

Careful analysis of these underperforming semiconductor companies, they have a common characteristic that relying on the industrial and automotive markets.

While companies that focused on consumer electronics or AI chips, their performance is not so bad, such as $Intel(INTC)$ is expected to return to double-digit growth in the fourth quarter, and $Taiwan Semiconductor Manufacturing(TSM)$ expects its fourth quarter revenue decline to narrow sharply.

Looking at semiconductors from the current point of view, it can be said that there is both recovery and depression, and whether the stock price can depends entirely on where the company's main business is focused.

Specifically, revenue of Texas Instruments in the third quarter was $4.53 billion, down 13.5% from a year earlier, and slightly lower than analysts' expectations of $4.55 billion:

Revenue missed expectations, and gross margins were also dragged down to 62.1% in the third quarter, missing analysts' expectations of 62.9%.

The most surprising is that the median revenue guidance for the fourth quarter was $4.1 billion, down 12.2% from the same period last year. That is the company's fourth consecutive quarter of double-digit decline, which rarely occurs in the history of Texas Instruments. At the same time, revenue guidance was significantly lower than analysts' expectations of $4.49 billion.

Texas Instruments is one of the world's largest semiconductor companies and the world's largest analog circuit technology components manufacturer. The company is mainly engaged in digital signal processing and analog circuit research, manufacturing and sales. Its main products are DSP (digital signal processing) and analog circuit components. In the field of analog devices, the company has more than 100,000 products.

The company's main revenue comes from the industrial market, accounting for 40% of revenue, followed by automotive, accounting for 25%, and the rest is personal electronics, communications and others:

In the third quarter, the company's automotive market revenue increased by 20%, the industrial market declined by about 15%, personal electronics declined by about 30%, communications declined by 50%, and enterprise systems declined by 40%!

The company expects further weakness in the industrial market.

Regionally, China is Texas Instruments' largest revenue source, with revenue of $1.88 billion in the third quarter, down 21.7% from the same period last year. Us revenue of 630 million, down 9.2%; Other regions maintained growth, but at a significantly lower rate than the previous quarter:

Therefore, the weakness of the industrial market is not only the weaker-than-expected economic recovery in China, but also in Europe and the United States.

Look at ST, the company is the world's important electronic components manufacturer. There is a complete portfolio and strong competitiveness in MCU, analog chips, MEMS and sensors and other fields, its products are widely used in computing, consumer electronics, IoT, intelligent vehicles and other fields.

In the third quarter, the company's revenue was $4.43 billion, up 2.5% year on year, and slightly exceeding analyst expectations of $4.38 billion:

However, the company expects fourth-quarter revenue of $4.3 billion, down 2.1% from a year earlier, mainly due to weakness in the industrial market, where customers are assessing market demand and inventory adjustments, and the timing of destocking is difficult to assess.

But management is optimistic about the auto market next year, and believes that personal electronics will bottom out in the fourth quarter.

ST's view of the auto market differs from that of contract chipmaker TSMC, whose automotive business fell 24% quarter-on-quarter in its third-quarter results, and whose management said car plants were destocktaking.

ON Semiconductor, an automotive chip leader, also expressed concerns about the automotive industry, with management forecast that the fourth quarter automotive business revenue will decline sequentially, and automotive demand decline or continue to the first half of 2024.

In the third quarter of this year, the revenue growth rate of ON Semiconductor's automotive business was as high as 32.5%, and the market was caught off guard by a sudden U-turn.

In addition to the decline in automotive demand, ON Semiconductor also highlighted the weakness of the industrial market, especially the sluggish European economy, which will adversely affect industrial and other businesses:

Lattice also predicts, the weakness in the automotive and industrial markets will continue into the fourth quarter.

Judging from the third quarterly results of the above-mentioned semiconductor companies, they collectively expressed concern about the industrial market, while there were differences on the automobile market.

According to the current data, global car sales reached 65.32 million units in the first nine months of this year, up 11% from a year earlier, and there are no signs of recession.

In the third quarter of this year, on Motors' revenue growth rate was as high as 32.5%, which suddenly turned around and caught the market by surprise.

But some analysts say car orders are falling sharply, especially in Europe, and given Tesla CEO Elon Musk's criticism of the Federal Reserve that high interest rates are eroding demand for cars, the auto market may be in for a downturn.

Although the car demand is still controversial, the PC market is really warming up. According to Intel's third quarterly results, the quarterly revenue of $14.158 billion, down 7.7% from the previous quarter, the decline is significantly lower than the previous quarter.Revenue growth in the fourth quarter could be as high as double digits, depending on performance guidelines:

Coincidentally, although AMD's guidance for the fourth quarter was less than expected, the revenue growth rate of the customer department in the third quarter was as high as 42.2%, compared with the decline of 53.6% in the previous quarter, which can be said to be directly out of the ICU:

It can also be seen from AMD that the decline of the Embedded business has increased, which is confirmed by the weakness of the industrial market described by other semiconductors.

In addition to PC returning to growth due to the end of inventory adjustment, AI chips have the greatest growth potential, such as AMD smart chip MI300 will be shipped in the near future, is expected to contribute $400m in revenue in the fourth quarter and reach $2 billion next year!

It was the explosive growth of AI that pulled AMD's nearly 5% after-hours decline back to within 1% :

Therefor, the semiconductor industry is now in a resonance state of recovery and depression. Their stock price is up or down after the release of the earnings report, completely depending on the focused segments of the industry. If it is the industrial market, it is likely to fall sharply.