The Philadelphia Semiconductor Index is up 2.1% as of the time of this article, easily outpacing the Nasdaq’s 1.1% gain and leaving it within 2% of a June 5 high of 2,030.47. The index is now up 7% on the year, and 36% over the last 12 months.
Micron, which is up about 4.5% post-earnings, clearly has a lot to do with the index’s Tuesday gains. The memory giant comfortably beat May quarter estimates and issued strong August quarter guidance, while noting (like many other chip suppliers) that demand from internet/cloud giants dealing with elevated traffic levels thanks to COVID-19 remains quite strong.
Micron did note that automotive memory demand is weak, and that (in spite of recent notebook strength) it expects PC unit shipments to be down this year due to lower desktop sales. But it was also optimistic about second-half smartphone memory demand, thanks in part to the launch of 5G phones packing more DRAM and NAND flash memory than comparable 4G models, and forecast next-gen game console would boost its graphics DRAM sales.
NAND rival Western Digital (WDC) - Get Report is up close to 4% following Micron’s report. In addition, chip equipment makers such as Lam Research (LRCX) - Get Report, Ultra Clean Holdings (UCTT) - Get Report and Axcelis Technologies (ACLS) - Get Report, each of which is up over 3%, appear to be responding favorably to Micron’s mixed capex commentary.
Micron said it now expects its capex for fiscal 2020 (it ends in August) to be at the high end of a prior guidance range of $7 billion to $8 billion, albeit while indicating that this revision is due to investments in buildings and back-end (chip packaging/testing) capex rather than front-end (chip production) capex. The company also said that it expects capex to be up in fiscal 2021, with much of its spending directed towards cutting-edge manufacturing processes, but added that “capex will be meaningfully lower than our pre-COVID-19 plan.”
Xilinx, which together with Intel (INTC) - Get Report dominates the market for programmable logic chips, is up over 6% after stating that it now expects its June quarter revenue to be in a range of $720 million to $734 million, up from prior guidance of $660 million to $720 million.
The company attributed the hike to stronger-than-expected demand from its Wired and Wireless Group (24% of March quarter revenue) and its Data Center Group (10% of revenue). This more than offset weaker-than-expected demand from its Automotive, Broadcast and Consumer segment (16% of revenue).
Xilinx’s commentary about its Wired and Wireless Group is the latest in a series of data points indicating telecom capex -- both for wireline and mobile networks -- is trending higher. Several chip suppliers with strong telecom equipment exposure, including Marvell Technology (MRVL) - Get Report, Inphi (IPHI) - Get Report and Macom Technology Solutions (MTSI) - Get Report, are up strongly today.
Both Micron and Xilinx did offer cautious remarks in one particular respect, however: They each observed that some of their clients appear to have grown their chip inventories lately.
Micron said that it believes inventories among cloud clients are still at healthy levels, but suggested inventories are elevated among mobile and automotive clients, while indicating -- in what’s likely a reference to purchases by Chinese clients following the arrival of new sanctions against Huawei -- that the mobile inventory growth is partly due to “geopolitical considerations.”
Along similar lines, Xilinx said that a portion of its June quarter revenue strength was “due to customers accelerating orders following recent changes to the U.S. government restrictions on sales of certain of our products to international customers.”
Micron and Xilinx's inventory comments came just before the FCC formally designated Huawei and Chinese peer ZTE as national security threats on Tuesday, an action that prevents U.S. companies from using money from the FCC's $8.3 billion/year Universal Service Fund to buy Huawei and ZTE's equipment.