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European companies less involved in the artificial intelligence (AI) chip market are coming under increased pressure, with falling demand in the automotive and industrial sectors. That said, suppliers of machinery to manufacture chip components such as ASML and ASM International are benefiting from the growth in AI chips.
However, even these players are not immune to valuation corrections and international trade tensions, particularly between the USA and China. Indeed, possible new US restrictions on China could shorten the party in the semiconductor sector. The U.S. government is considering a Foreign Direct Product Rule to put further pressure on key players in the industry.
We saw this last week with the publication of ASML. Despite an unchanged outlook, the stock plummeted against a backdrop of trade tensions. Recently, the Netherlands followed in the footsteps of the USA and Japan by introducing restrictions on the export of high-tech semiconductor manufacturing equipment. This measure is designed to prevent China from gaining access to the most advanced chip technologies. In response to these restrictions, China denounced these actions as "technological terrorism".
Sector fundamentals remain solid, with demand for electric vehicles (EVs) and AI technologies set to drive long-term growth. But in the short term, players with the greatest exposure to EVs and China are suffering the most.
The SOXX (Semiconductor Index) has fallen sharply since July 11.
Let's take a look at this week's latest releases to take stock of the ongoing consolidation in the semiconductor sector.
NXP Semiconductor reported sales of $3.13 billion for the second quarter of 2024, down 5.2% year-on-year, but in line with market expectations. GAAP gross margin was 57.3%, with operating income of $896 million. The company forecasts third-quarter sales of $3.25 billion, slightly below market expectations. The automotive division was particularly hard hit, down 4% on the previous quarter, while the Industrial & IOT division grew by 7%. NXP also announced a strategic investment in a manufacturing joint venture with Vanguard International Semiconductor, aimed at strengthening its long-term growth.
Texas Instruments exceeded expectations with quarterly earnings of $1.22 per diluted share, and sales of $3.82 billion. The company experienced an 11% year-on-year decline in analog sales, but a 3.2% increase over the previous quarter. Morgan Stanley reported that the bottom has probably fallen out of the analog business for Texas Instruments and for the industry as a whole. The company is doing rather well compared to its peers.
ASM International reported results for the second quarter of 2024 above expectations, with sales of €706 million and new orders of €755 million. The company maintained its long-term revenue targets for 2025 and 2027, and expects healthy growth thanks to its key technologies used in various segments such as logic, memory and silicon carbide automotive chips.
SK Hynix posted an operating profit of 5.47 trillion won for the April-June quarter, the highest in six years, thanks to strong demand for high-end DRAM chips and eSSDs. The company benefited from its early positioning in the AI segments and is the main supplier of HBM chips to Nvidia.
KLA Corporation forecast sales of $2.75 billion for the current quarter, exceeding analysts' expectations. The company also forecast adjusted earnings with a midpoint of $7 per share, ahead of analysts' estimates. KLA benefits from growing demand for high-end chips driven by AI applications.
Teradyne reported third-quarter sales below Wall Street estimates, reflecting weak demand for its semiconductor test equipment. The company expects third-quarter sales of $680 to $740 million, with adjusted earnings per share in the range of 66 cents to 86 cents.
BE Semiconductor Industries exceeded expectations for new orders in the second quarter, thanks to demand for its systems used in AI and other advanced packaging applications. New orders totaled 185.2 million euros, and the company expects sales to be broadly stable for the third quarter. The stock fell sharply on the Amsterdam stock exchange on Thursday.
STMicroelectronics has reduced its targets for 2024, now anticipating sales of $13.2 billion to $13.7 billion and a gross margin of around 40%. The company also presented lower-than-expected third-quarter targets, with expected sales of $3.25 billion and a gross margin of 38%. The share price fell sharply on the Paris stock exchange on Thursday.
The semiconductor sector faces significant challenges, but some companies are leveraging the growth of AI to maintain their momentum. The long-term outlook remains positive, despite short-term uncertainties.
