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How Did Macroeconomic Headwinds Affect Semiconductor Earnings?


Mar. 10 2016, Updated 6:06 p.m. ET

Macro headwinds in China

So far in this series, we have seen that the seasonal decline in certain consumer sectors affected the companies’ revenues. These seasonalities were aggravated by a strong dollar and an uncertain macroeconomic environment. Let’s examine how these two factors impacted the semiconductor supply chain.

Let us start with the most talked-about PC and smartphone sector. China (MCHI) is the manufacturing hub of all consumer electronics, including PCs and smartphones. The nation accounts for more than 50% of global semiconductor consumption. It relies on exports to meet its semiconductor needs.

The strengthening of the dollar made semiconductors expensive for China and the weakness in the Chinese economy further reduced its buying power. Most semiconductor companies reported declining revenues due to high dependence on China.

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Smartphone market and China

According to IDC (International Data Corporation), 29.6% of total smartphone shipments were made in China. Apple (AAPL) reported the slowest iPhone sales growth of 1% in the December 2015 quarter, largely due to slow sales in China. It expects to post a revenue decline in the March 2016 quarter.

Annually, Qualcomm (QCOM) earns close to $13 billion in licensing revenue from China. The company’s revenue fell 19% YoY (year-over-year) in the December 2015 quarter due to a slowdown in the high-end smartphone market, especially in China.

Advanced Micro Devices’ (AMD) revenue fell by 23% YoY in the December 2015 quarter due to a weak macroeconomic environment.

China’s move to self-sufficiency

While China grapples with the high cost of semiconductor exports, it initiated measures toward self-sufficiency in semiconductor manufacturing. It also encouraged global semiconductor companies to set up plants in the nation. This attracted investments from Intel (INTC) and TSMC (TSM).

Increasing investment in China has resulted in large orders for SME (semiconductor manufacturing equipment) suppliers from domestic and international companies. SME suppliers Applied Materials (AMAT), Lam Research (LRCX), KLA-Tencor (KLAC), and Teradyne (TER) expect to report stronger revenue in the January to June 2016 period.


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