On February 15^th, U.S. chip equipment giant Applied Materials released financial results that surpassed expectations, accompanied by an optimistic revenue forecast for the current quarter.

In the previous quarter (Q1 of the fiscal year), Applied Materials recorded a revenue decline of less than 1%, totaling USD 6.71 billion, surpassing the market anticipated USD 6.48 billion. Net profit amounted to USD 2.02 billion or USD 2.41 per share, exceeding the USD 1.72 billion or USD 2.02 per share reported in the same period last year. On an adjusted basis, earnings per share stood at USD 2.13, compared to USD 2.03 in the corresponding period last year, surpassing the previous market expectation of USD 1.90 per share.

Applied Materials forecasts sales for the current quarter (Q2) to range between USD 6.1 billion and USD 6.9 billion, with the midpoint of USD 6.5 billion exceeding market consensus projection of USD 6.34 billion.

Excluding certain items, earnings per share for the quarter ending in April are expected to be between USD 1.79 and USD 2.15. The market anticipated earnings per share of USD 1.80, is at the lower end of this range.

This optimistic outlook suggests a faster-than-expected rebound in the chip industry. As Applied Materials provides equipment to major semiconductor manufacturers, including Samsung Electronics, TSMC, and Intel, its financial forecasts serve as a crucial indicator of future demand in the semiconductor industry’s supply chain.

China emerged as a notable highlight, with sales more than doubling to USD 3 billion, comprising 45% of the company’s overall revenue. CEO Gary Dickerson attributed this surge to a rush to enhance capacity for IoT appliances, communications, the automotive industry, as well as power and sensors. In the telephone interview, Dickerson mentioned this sector as ICAPS.

Although the growth rate in this sector may not be sustained at its current level, the requirement for more chips per device will continue to propel the market forward, indicating that the current expansion is not a bubble.

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(Photo credit: Applied Materials)

Apple’s product line is rumored to set for a significant upgrade. According to a report from Economic Daily News, the next-generation M4 and A18 processors, slated for iPads, MacBooks, and iPhones, are expected to increase the number of built-in AI computing cores, leading to a substantial growth in orders to TSMC. Consequently, TSMC’s production volume for its enhanced 3-nanometer process this year is forecasted to surge by over 50% compared to last year.

As per a report cited by the Economic Daily News, Apple, recognizing the significant AI trend, is not only significantly enhancing the AI computing power of the M3 and A17 processors this year, but also increasing the number and efficiency of AI computing cores in the next-generation M4 and A18 processors. The AI application adoption rate across all product lines is expected to greatly increase.

Apple is strengthening the AI computing performance of its terminal devices and significantly increasing the computational power of its in-house processors, resulting in a simultaneous substantial increase in orders to TSMC.

The report further cited sources indicating that Apple’s orders for TSMC’s enhanced 3nm process this year are rumored to increase by over 50% compared to last year, solidifying its position as TSMC’s largest customer.

In addition to increasing orders for TSMC’s wafer production, reportedly, Apple has also secured a significant amount of advanced packaging capacity from TSMC. Industry sources cited by the Economic Daily News has indicated that Apple primarily places orders with TSMC for advanced packaging processes such as InFO and CoWoS, which are 2.5D advanced packaging technologies.

This year, there is a possibility that Apple will push its advanced packaging requirements to the highest price and difficulty level, such as the 3D structure SoIC advanced packaging.

TSMC, reportedly, is expanding its production capacity for the 3nm family and advanced packaging this year to meet the large orders from major clients such as Apple, NVIDIA, and AMD in the coming years.

As per TrendForce’s data, the 3nm process alone contributed 6% to TSMC’s Q3 revenue, with advanced processes (≤7nm) accounting for nearly 60% of its total revenue.

TSMC had previously announced during its earnings call that its capital budget for this year is expected to fall between USD 28 billion to USD 32 billion, with 70% to 80% allocated for advanced processes, 10% to 20% for specialty processes, and the remaining 10% for advanced packaging, testing, and mask production.

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(Photo credit: TSMC)

The demand for Dutch semiconductor equipment manufacturer ASML serves as a trend indicator for the industry. The company optimistically stated in its annual report that the chip industry has hit rock bottom and is beginning to show signs of recovery. However, it also cautioned that geopolitical tensions and the potential expansion of US export controls on China remain operational risks.

ASML’s Chief Financial Officer, Roger Dassen, stated in the annual report for 2023 released on the 14th, “We believe that the market has now reached the lowest point of the dip, and although we cannot predict the exact nature of the slope ahead, the recovery is nascent.”

He further pointed out, “The longer-term trends are unmistakable – artificial intelligence, electrification, and the energy transition are happening,” which bodes well for ASML’s business.

However, the ASML annual report mentioned, “The list of Chinese entities impacted by export control restrictions has increased since 2022,” and “The list of restricted customers and the scope of the restrictions were subject to change.”

According to TrendForce’s analysis, while Chinese semiconductor fabs will be unable to purchase NXT:2000i series tools and newer from 2024 onwards, they will still have access to older models like the NXT1980i. This allows them to continue expanding their capacity for manufacturing processes of 28nm and above.

In last month’s financial report announcement, ASML indicated that it anticipates export controls from both the United States and the Netherlands to result in a decrease of approximately 10% to 15% in sales of its mid-range DUV equipment to China this year.

Regarding the 2023 record of ASML’s DUV sales, Dassen also explained in the interview accompanying the financial report that the strong performance in China’s business in 2023 actually stemmed from orders placed at the end of 2022, with the execution of these orders taking place in 2023.

In 2023, China surpassed South Korea to become ASML’s second-largest market, accounting for 26.3% of sales, while Taiwan maintained its leading position with sales accounting for 29.3%.

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• [News] Despite U.S. Semiconductor Export Restrictions, ASML Reports Doubling of Revenue Share from China in 2023
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(Photo credit: ASML)

US Commerce Secretary Gina Raimondo has announced on February 5th that the Commerce Department would distribute substantial subsidies to chipmakers investing in the US within the next two months. The subsidy recipients are expected to include companies like TSMC and Intel.

As per a report from Reuters, Raimondo discussed the progress of subsidies under the US CHIPS and Science Act. “We’re in the process of really complicated, challenging negotiations with these companies. In the next six to eight weeks, you will see several more announcements. That’s what we’re striving for,” she stated.

Raimondo did not specify which chipmakers she is negotiating with, but she mentioned in an interview cited by Reuters,”These are highly complex, first-of-their-kind facilities. The kind of facilities that TSMC, Samsung, Intel are proposing to do in the United States — these are new-generation investments — size, scale complexity that’s never been done before in this country.”

Last month, as per Bloomberg cited industry sources in a report, plans for the United States to announce substantial chip subsidies by the end of March are revealed, targeting companies such as TSMC and Intel. The US CHIPS and Science Act reportedly includes a USD 39 billion manufacturing subsidy, providing 15% of the total cost for each independent project. Each fab can receive up to USD 3 billion in subsidies, along with loans, loan guarantees, and tax exemptions.

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(Photo credit: TSMC)

China’s leading semiconductor foundry, SMIC International, announced its fourth-quarter financial results on February 6th. While the quarter’s revenue exceeded expectations, a significant drop in gross margin led to a sharp decrease in net profit by less than 50% to below USD 1 billion last year.

SMIC issued a warning, further revising down the gross margin for the first quarter of this year to around 10%, with single-digit figures at the lower end.

During the fourth quarter, SMIC International saw a revenue increase of over 3.5% to more than USD 1.678 billion, marking the only quarter of revenue growth last year. Net profit plummeted by 54.7% to nearly USD 175 million.

The gross margin of 16.4% was almost halved compared to the same period in 2022 and experienced a significant decline from the previous three quarters, reaching its lowest point of the year.

In the full year of 2023, SMIC International experienced a revenue decline of over 13% to USD 6.3 billion, with a net profit decrease of 50.4% to USD 900 million. The gross margin was approximately halved to 19.3%.

Regarding the decline in net profit, SMIC cited various factors including the industry downturn, weak market demand, high industry inventory, and fierce competition among peers, all contributing to reduced capacity utilization and decreased wafer shipment for the group.

Additionally, the group experienced a period of high investment during the financial reporting period, leading to increased depreciation compared to the previous year.

Looking ahead to the first quarter of this year, SMIC estimates a quarter-on-quarter revenue growth of up to 2%. For the first-quarter gross margin guidance, SMIC has provided a range of 9% to 11%, indicating a decrease of approximately 33% to 45% from the low point of 16.4% in the fourth quarter of last year.

SMIC also anticipates that, under the assumption of no significant changes, this year’s revenue growth will not be lower than the average of comparable peers, showing a mid-single-digit increase compared to last year. The capital expenditure scale is expected to remain roughly flat compared to last year.

The significant downward revision in gross margin guidance has drawn attention to SMIC’s strategic moves. According to a report by the Financial Times, SMIC is intensifying its collaboration with Huawei by establishing a new production line in Shanghai dedicated to producing chips for Huawei’s future flagship smartphones, focusing on the 5-nanometer process.

However, industry sources cited by the report have also indicated that SMIC’s prices for 5-nanometer and 7-nanometer processes are 40% to 50% higher than TSMC’s, and the yield less than one-third of TSMC’s.

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(Photo credit: SMIC)