Though chip stocks have fallen sharply over the last two weeks as earnings season has kicked off, the numbers and commentary provided by the chip and chip equipment makers that have reported to date contain a healthy mixture of good and bad news.
To be fair, M&A concerns appear to be playing some role in the selloff. The unwillingness of Chinese regulators to sign off on either the Qualcomm (QCOM) /NXP (NXPI) deal or a Bain Capital-led deal to buy Toshiba's flash memory unit has stoked fears that the chip industry's M&A wave will be halted until trade tensions between the U.S. and China ease.
But to the extent that investors are on edge about weakening demand, it's worth noting that earnings news flow has been encouraging for some parts of the industry. Here are some takeaways from the March quarter reports delivered so far by the likes of Texas Instruments (TXN) , STMicroelectronics (STM) , Taiwan Semiconductor (TSM) , Lam Research (LRCX) , Teradyne (TER) and SK Hynix (HXSCL) .
1. Industrial and automotive chip demand still looks good.
After the close on Tuesday, Texas Instruments beat Q1 estimates on the back of 11% sales growth, and offered Q2 sales and EPS guidance ranges whose midpoints were above consensus. Notably, TI, by far the world's biggest analog chipmaker and also a major microcontroller (MCU) supplier, says it continues to see strong, broad-based growth for industrial and automotive chip sales. Shares rose 4.7% on Wednesday.
Meanwhile, on Wednesday morning, rival STMicroelectronics reported in-line revenue and a slight EPS beat, and issued Q2 sales guidance that was slightly above consensus at the midpoint. STMicro, which supplies motion and/or proximity sensors for iPhones and high-end Samsung phones, did note on its earnings call that smartphone-related demand will be weak in Q2 before improving in the second half of the year. But it added industrial, automotive and IoT chip demand is strong. Shares rose 3.2% on Wednesday.
Though concerns have been raised that the analog and MCU markets are at risk of seeing an inventory correction (they haven't had a major one in a while), given signs of excessive ordering and stretched lead times, TI and STMicro's numbers suggest conditions remain good for now. That's particularly true in industrial and auto markets where trends such as factory automation, ADAS adoption and electric/hybrid car sales are boosting chip demand. Several other analog/MCU firms, including Microchip (MCHP) , ON Semiconductor (ON) , Maxim Integrated (MXIM) and NXP Semiconductors (NXPI) , will be reporting soon.
2. Smartphone chip demand is weak.
STMicro is hardly the only company to warn of smartphone pressures. Last week, TSMC, which manufactures chips both for Apple (AAPL) and a slew of Apple's third-party chip suppliers, offered soft Q2 guidance and lowered its full-year revenue growth forecast. Smartphone weakness was cited as a culprit for both the Q2 and 2018 outlooks; TSMC also said "uncertainty in cryptocurrency mining demand" impacted its full-year guidance.
Also: Tuesday saw Austria's AMS, a long-time iPhone supplier that provides sensors used by the iPhone X's TrueDepth front-camera system, provide a weak Q2 outlook that it blamed on "a more difficult short-term demand environment in the smartphone market." It also saw chip test equipment maker Teradyne offer a light Q2 forecast and state "the demand outlook for 2018 mobile device test capacity declined sharply" in Q1.
On its call, Teradyne, which counts Apple as a client, said it's cutting its 2018 outlook for mobile system-on-chip (SoC) revenue due to "an isolated reset of specific 2018 customer plans." The company also suggests "lower [SoC] complexity growth for a significant portion of the smartphone market and a near-term focus on lower cost" will weigh on 2018 sales.
It's safe to say that expectations look pretty low for Apple's March quarter report, which arrives on Tuesday afternoon. Especially for the June quarter sales guidance that's expected to be included within it.
3. Memory conditions remain healthy -- outside of smartphones, at least.
Korean memory giant SK Hynix slightly missed Q1 revenue estimates due to soft mobile DRAM and NAND flash memory demand. But it also reported seeing strong server DRAM and enterprise solid-state drive (SSD) demand -- soaring cloud capital spending is providing a lift -- and noted PC DRAM demand has improved, thanks in part to gaming PC and Chromebook growth.
Hynix's pricing and supply commentary was also generally encouraging, though more so for DRAM than NAND. The company's DRAM average selling price (ASP) rose 9% sequentially in Q1, with higher prices seen for all product segments, and -- amid signs that NAND pricing is weakening -- reported a modest 1% drop in NAND ASP.
Hynix also forecast that DRAM bit demand would rise by a low-20% percentage this year (close to the supply growth that Hynix and others have predicted), and that "supply growth will not be enough to ease the price supply situation." NAND industry bit supply is expected to grow by a mid-40s percentage -- that's a little higher than Hynix's prior forecast, but a little below Micron's (MU) -- with demand growth "expected to be in line with supply growth" and lower prices boosting average capacities for PC SSDs.
The remarks come a week after top-three chip equipment maker Lam Research argued that DRAM capacity growth remains under control, and that (due to rising capital-intensity) increases in DRAM capex won't necessarily yield major increases in supply. For Micron, which got 71% of its revenue and around 80% of its gross profit from DRAM during its February quarter, both Hynix and Lam's commentary is fairly encouraging.