Semiconductors

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Market analysis

Out of the five semiconductor companies tracked, Intel was the only company to report year-over-year revenue growth, posting a 7.2% increase, but net income dropped sharply from the prior quarter by 43.4%. Sequentially, overall revenues declined by 2.1%. For the group as a whole, net income also declined year over year by 3.8% on average and 17.3% sequentially. Applied Materials was the only company with significant quarter-over-quarter growth in profit of 11.9%.

The global semiconductor industry reported worldwide sales of semiconductors of US$26.1 billion for the month of March 2016, a slight increase of 0.3% compared to the previous month’s total of US$26.0 billion, but importantly, the first increase in five months. Sales from the first quarter of 2016 were US$78.3 billion, down 5.5% compared to the previous quarter and 5.8% lower than the first quarter of 2015. Q1 sales lagged behind last quarter across nearly all regional markets, with the Americas showing the sharpest decline.1

Regionally, month-to-month sales increased in Japan (4.8%), Asia Pacific/All Other (2.3%) and Europe (0.1%), but fell in China (-1.1%) and the Americas (-2.8%). Compared to the same month last year, sales in March increased in Japan (1.8%) and China (1.3%), but decreased in Asia Pacific/All Other (-6.4%), Europe (-9.8%) and the Americas (-15.8%).1

A significant 83% of US semiconductor industry sales are into markets outside the US, therefore access to overseas markets is essential to the long-term health of the US semi industry. The Trans-Pacific Partnership, a landmark trade agreement that would lower the barriers to trade with countries in Asia-Pacific, is supported by the US semi industry.1

Semiconductor capital spending is projected to decline 2% in 2016, to US$62.8 billion. Although the Q1 2016 forecast has improved from a projected decline of 4.7% in the previous quarter's forecast, the 2% decline in the market for 2016 is still a low point. The forecasted decline is due to excess inventory and weak demand for PCs, tablets and mobile products, resulting in a slowing growth rate that began in late 2015.

The slowdown in the devices market is only one reason for semiconductor producers to be conservative with their capital spending plans. In addition, the pursuit of semiconductor manufacturing capability by the Chinese government is also impacting spending. In the last year, there has been consolidation as well as merger and acquisition activity with specific offers from various Chinese-based entities, pointing to a dramatically different competitive landscape of global semiconductor manufacturing in the next few years. The market is expected to return to growth in 2017. Increased demand for 10 nanometer (nm) and 3D NAND process development in memory and logic/foundry will drive overall spending to grow 4.4% in 2017.2

Intel reported Q1 2016 revenue of US$13.7 billion, operating income of US$2.6 billion and net income of US$2.0 billion. Net income was 2% higher than Q1 2015, but represented a sharp decline of 43% sequentially. The decline was due to lower revenue and an increase in cost of goods sold. The company generated approximately US$4.0 billion in cash from operations and used US$793 million to repurchase 27 million shares of stock. The acquisition of Altera was completed in Q1 2016. As a result of the Altera acquisition, Intel had acquisition-related charges that were primarily non-cash.

TSMC reported revenue of US$6.14 billion and net income of US$1.95 billion for Q1 2016. Year over year, revenue decreased 12.8% while net income decreased 22.0%. The decline in net income was due to lower capacity utilization and the adverse impact of the earthquake in February. Compared to Q4 2015, revenue was flat, and net income declined by 12.4%. The earthquake also negatively impacted TSMC’s gross margin by 2.2% and operating margin by 2.4%. Advanced technologies, defined as 28- nanometer and more advanced technologies, accounted for 53% of total wafer revenues.

 

1.       Semiconductors.org, Nov 2015
2.       Gartner.com, Jan 2016