AMAT China Collapse and TSMC Timing Trimming

– AMAT has OK Q but horrible guide as China & Leading edge drop
– China finally chokes on indigestion & export issues -$500M hit
– TSMC trims on fab timing causing leading edge to slow -$500M hit
– Cycle which had slowed to single digits has rolled over to negative

AMAT guides down for big miss on Q4 expectations

Revenue came in at $7.3B and non GAAP EPS was $2.48 however guidance for the current quarter was dismal at best at $6.7B +- $500M and EPS of $2.11 +-$0.20, way below expectations.

China and leading edge will each be off by $500M

China will see a drop of about $500M due to indigestion, slowing, export licensing etc;.

The China slowing was somewhat inevitable as the numbers have been way too high for way too long but the rapidity of the drop is surprising and seems to suggest that management was caught by surprise as it was clearly unexpected.

Leading edge logic/foundry is also going to be off by $500M as management blamed timing of fab projects for the “non-linearity”, a nice way of saying a non expected drop. Management also seems to be caught by surprise by this drop as well.

Taken together this “surprise” drop of $1B was slightly offset by some better performance in AGS but far from enough to offset the large drop.

TSMC likely slowing near term

We have said a number of times that TSMC is so way far ahead of both Intel & Samsung that they can afford to take their foot off the gas of capex.

In addition there may also be some lumpiness of fab timing as indicated by management.

Has the spend cycle rolled over?

It certainly feels like the spend cycle has just unceremoniously rolled over.

We could be seeing the end of the long and strong China capex spend which has kept the semi equipment industry in goods times.

In addition with the bleeding edge consolidating to one player, TSMC, that will likely make the business much more lumpy and likely drive down margins as TSMC wields all the power and can dictate to equipment companies.

Memory is good but only in HBM and only until every manufacturer gets up to speed and oversupplies the commodity market again

The stocks

The stocks have been doing well despite the warning signs that have been cropping up.

Most of the chip equipment companies have seen their valuations at record levels.

AMATs report is not just another warning sign its hard evidence of slower times ahead

The stocks have been caught up in the rising tide of AI and data center capex but they are not 100% correlated to the same dynamic and this may be the point of divergence.

AMAT was off 14% in the aftermarket and we will likely see a lot of investors bail on the stock and the group in general as reality hits home.

We are also somewhat surprised that Applied was so surprised by this “Double Whammy” of slow downs and didn’t see either one coming. It doesn’t exactly give us a lot of faith in prediction capabilities.

Obviously there will be collateral damage on LRCX, KLAC and ASML among others. But Applied likely deserves a bit more of a downside hit due to the lack of foresight.

We don’t see a lot of reason to buy on the dip as it may take a while to find its new support level and we may see a rearrangement of investors in the mean time.

About Semiconductor Advisors LLC

Semiconductor Advisors is an RIA (a Registered Investment Advisor),
specializing in technology companies with particular emphasis on semiconductor and semiconductor equipment companies.

We have been covering the space longer and been involved with more transactions than any other financial professional in the space.

We provide research, consulting and advisory services on strategic and financial matters to both industry participants as well as investors.

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Also Read:

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Elon Musk Given CHIPS Act & AI Oversight – Mulls Relocation of Taiwanese Fabs

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