- Outlook for broad semiconductors looks bleak as Taiwan Semiconductors posted disappointing guidance; Morgan Stanley says sell chip stocks amid double ordering.
- Tesla is under fire once more as UBS predicts gross profit miss when Tesla reports earnings on May 2.
- ZTE mania continues; going concern is challenged as the company notes the ban is a threat to its survival.
Weakness in semiconductors
Taiwan Semiconductor Manufacturing (TSM, Financial) posted disappointing results yesterday, missing the top line and bottom line estimates. Revenue came around $8.46 billion, up 13% over previous year but slightly short of analyst consensus. The company reported earnings per share of 59 cents. Analysts were modeling for earnings per share of 60 cents.
The company also issued a muted forward guidance, with full year revenue to grow 10% during 2018 as compared to the previous guidance of 10-15%. The mid-point revenue guidance of the company now stands at $35.31 billion as compared to the analysts’ consensus of $36.74 billion. The company cited slowdown in demand for smartphones and cryptocurrency uncertainty as the reason for a revised guidance.
The slowdown, if it materializes, will affect mostly analog semiconductors, including Analog Devices (ADI, Financial), Amphenol (APH, Financial), XIlinx (XLNX, Financial), Microchip (MCHP, Financial) and Cypress (CY, Financial).
Point of Interest
The expectation of a slowdown doesn’t directly affect Intel (INTC, Financial). It can be a bit of a bad news for Advanced Micro Devices (AMD, Financial) and Nvidia (NVDA, Financial) though. Most of the weakness is being attributed to a lack lustrous smartphone markets. Intel and AMD are not the suppliers of chips in the mobile market, and are shielded from the effect. Note that TSM said that 40% of its growth will come from high performance chips during the next five years as compared to previous estimates of 25%. This indicates that Intel and Advanced Micro Devices are in the clear. However, Advanced Micro Devices and Nvidia might have a problem as crypto-related revenue can come down as a direct result of weakness in cryptocurrencies. However, Taiwan semiconductor was not bold enough to dismiss the growth in the crypto-arena as it cited the term “uncertainty” for crypto-market, not “downturn.”
Production woes of Tesla
UBS analyst, Colin Langan, thinks that Tesla (TSLA, Financial) is likely to miss its gross profit expectations in the upcoming earnings release. Langan continues to maintain his sell rating on Tesla while citing that manufacturing problems will continue to remain a challenge for the company. The production of more than 2000 Model 3 car per week was a one-time feat at the end of the quarter, which can’t be used to make future projections.
CEO Elon Musk disagrees with Langan. He is aiming to produce 6,000 Model 3s per week by the end of June. He recently wrote in an email to employees that they should target to produce 6,000 Model 3s instead of 5,000, noted Bloomberg.
Point of interest
Despite producing 2,000 Model 3s during the last week of the first quarter, Tesla only managed to produce 751 cars a week. That translates to 37% of the target achieved during the last week of the first quarter. Following Musk’s target for the second quarter, it seems Tesla will, on average, produce around 2,200 Model 3s per week during the second quarter, which is well below the target range.
The ban on ZTE
ZTE (SZSE:000063) was recently banned by the U.S. commerce department for seven years amid violating U.S. export laws. The company has come forward today and called the ban unfair. “It is unacceptable that BIS (Bureau of Industry and Security) insists on unfairly imposing the most severe penalty on ZTE even before the completion of investigation of facts,” noted ZTE’s officials in their first response to the news. It added, “The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of U.S. companies.”
Point of interest
The ban is being considered as an all-out assault against Chinese companies. There is stern reaction in China as the people have started to debate China’s heavy reliance on foreign semiconductors. On the U.S. side, the government is planning to curb China’s access to key U.S technologies. Overall, the escalating tension between the two countries will continue to affect the corporations on both sides. ZTE’s ban seems ominous.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
