In case you needed any more evidence to support the contention that the global economy is slowing, that the semi cycle is turning and that Apple is not just a bellwether, but is in fact synonymous with the macro narrative, look no further than guidance from Apple’s main chipmaker, Taiwan Semiconductor Manufacturing Co., out Thursday.
While the world’s largest contract chipmaker (so, a bellwether in its own right) managed to meet estimates on net income for Q4, the company’s outlook was concerning – to say the least.
TSMC guided for gross margins in Q1 of 43% to 45%, well below the 47.5% consensus was looking for and said operating profit margin will be 31% to 33%, not even close to the expected 36.8%. CFO Lora Ho did not mince words, attributing the margin guide down to “lower utilization due to overall weakening macroeconomic environment and mobile product seasonality and high level of inventory in the supply chain.”
And it just gets worse the further you look into it. Capex will now be flat, apparently, and the company has implemented a hiring freeze until the global economic environment improves. Revenue guidance is light at $7.3-7.4 billion this quarter against consensus of $8.1 billion.
To be absolutely clear, this is not good news at all. This is the most widely held stock in Asia and when it comes to EM companies, it’s the second most widely held stock in the world behind only Alibaba. It’s coming off the worst quarter since the crisis and if Q1 guidance is any indication, things aren’t about to get any better.
(Bloomberg)
This is weighing heavily on European semis. AMS, Infineon and STMicroelectronics are all off sharply.
(Bloomberg)
So, if you didn’t believe Micron and you didn’t believe Samsung and you didn’t believe Apple when it comes to the idea that smartphone demand may well have peaked and that the read-through from a turning in the semi cycle is most assuredly not good for the global economy, well then maybe you’ll believe TSMC.
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I believe the trend. To me, the unresolved issue is how to much to attribute to reasons for the slowdown that have different implications for the rest of the economy. In other words, the demand for iPhones is down for some combinations that include (a) slowing global economic growth, (b) market saturation, as a greater percentage of the population owns a smartphone, and (c) a less compelling product offering, as Apple fails to offer much value for newer and more expensive models. I think all three factors are at work. Twenty years ago we all lived and died by looking at growth in the PC market. Now, it still matters. But its not the tip of the sword. So the question for the rest of the market is how much of thes is specific to Apple, how much is specific to smartphones, and how much is attributable to global economic conditions?