The semiconductor industry in 2018
The semiconductor industry has been enjoying strong growth in 2016 and 2017 with the advent of AI (artificial intelligence) and VR (virtual reality), as well as the cryptocurrency boom and a growing demand for high-performance PCs (personal computers) and smartphones. That strong growth raised fears among investors about the end of the uptrend. Semiconductor stocks thus reacted strongly to even slightly negative news.
This year started off weakly for the technology sector with the disclosure of chip design flaws, trade tensions between the United States and China (the two largest semiconductor markets), and iPhone production cuts by Apple. All eyes were on the first earnings season of the year to understand the impact of those headwinds. Investors reacted more on guidance than on earnings figures.
First semiconductor earnings of 2018
The earnings season started with better-than-expected earnings for semiconductor equipment manufacturer Lam Research (LRCX) and strong earnings for the world’s largest foundry, Taiwan Semiconductor Manufacturing (or TSMC) (TSM). Lam Research earns 80% of its revenue from memory chips manufacturing equipment, and TSMC earns more than 50% of its revenue from manufacturing smartphone chips.
While the two companies reported strong earnings, they had weak guidance for fiscal 2Q18. That made investors pessimistic about the demand for memory and smartphones in 2018.
However, these concerns were eased when the world’s largest analog chipmaker, Texas Instruments (TXN), reported better-than-expected earnings and guidance. Its earnings are considered a bellwether for the semiconductor industry’s growth since its chips are used in almost all devices, from consumer electronics to industrial, automotive, and smartphones.
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