Dutch semicon companies stand tall at start of downturn

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As the industry braces for a downturn, Dutch semiconductor companies are still going strong.

The downturn has started. Global semiconductor sales in Q3, reported by WSTS as a three-month moving average, were down 6.3 percent sequentially and 3.0 percent year-on-year, marking the first contraction since January 2020. Typically, Q3 is the strongest quarter for chipmakers, as their customers prepare for increased consumer spending during the Holiday season.

It shouldn’t come as a surprise after a downright pessimistic earnings season. Probably the most gloomy comment came from Rick Tsai, CEO of the Taiwanese fabless Mediatek: “Our industry hasn’t seen a downturn of this magnitude in probably over a decade. There were fluctuations in the last 10-12 years, but nothing compared to this. I would call it a severe downturn,” he told investors.

Smartphone chipmakers aren’t the only ones bracing for impact. One semiconductor firm after another announced spending cuts. The notoriously volatile memory market leads the pack with capex reductions of up to 50 percent. “What has been surprising is the extent of the sharp decline in demand,” Micron’s chief business officer Sumit Sadana told Reuters.

In logic, cuts are less drastic, with TSMC downsizing 10 percent and Intel 8 percent. “We’re planning for the economic uncertainty to persist into 2023,” Intel CEO Pat Gelsinger told investors. “We expect probably in 2023 the semiconductor industry will likely decline,” agreed TSMC CEO CC Wei.

A notable exception is memory and logic maker Samsung, which plans to raise capex by 9 percent this year in an apparent bid to intensify competition with TSMC. “Without a doubt, we’re at a pivotal moment. Now is the time to act, to be bold and unwavering in our focus,” said executive chairman Jay Lee in a statement.

The slump may be spreading beyond the leading edge, too. Texas Instruments noted “expanding weakness” in industrial chips – one of the segments that so far seemed relatively unaffected. Peers such as Infineon and STMicroelectronics, however, remained upbeat about the demand for industrial electronics.

So, amid this downward spiral, how are the Dutch semiconductor companies faring? It’s a mixed bag, but all in all, things look pretty good.

Cautiously optimistic

We can be quick about ASML: everything is hunky dory. Spotting no signs whatsoever of demand for litho tools cooling, the Veldhoven-based equipment maker reported a record order intake of 8.9 billion euros in Q3. Assuming 4.5 billion euros in system sales per quarter, the current 38-billion-euro order book is enough to keep the company busy for more than two years. Of course, ASML is frantically working on expanding capacity.

NXP is still going strong, too. The chipmaker reported a 20 percent year-on-year revenue increase in Q3, driven by “resilient demand” in the automotive (+24 percent YoY) and industrial (+17 percent YoY) segments, along with “incrementally improved supply” – NXP has been supply-constrained for a while and expects that situation to continue. The Eindhoven-headquartered company did note weakening demand in its consumer-exposed IoT business and, more generally, expressed caution for the intermediate term due to the macroeconomic uncertainties.

Back-end equipment manufacturer BE Semiconductor’s results weren’t as rosy. Feeling the slump in the smartphone market, among other things, revenue dropped 19 percent YoY in the third quarter. Orders slid even more sharply, 40.1 percent YoY, mainly “due to broad-based market decline, particularly in computing applications,” according to a company statement.

“The outlook for the assembly equipment market has turned more negative during the quarter as industry conditions weakened, global GDP growth rates decelerated and customer caution increased. At present, it appears to be a traditional industry downturn marked by overcapacity and order pushouts by customers,” commented Besi CEO Richard Blickman. During the earnings call, he proved cautiously optimistic that the downturn won’t be very deep. Since chipmakers keep adding capacity, he noted, the back-end should bounce back soon.

ASM International, finally, spooked investors when it reported that 40 percent of its China backlog had been affected by the new US export controls. A precautionary measure, this may prove to be little more than a hitch, as the front-end equipment manufacturer has been reporting a string of record quarterly revenues. In an interview with the Dutch newspaper De Telegraaf, ASMI’s management assured shareholders its long-term growth trajectory hadn’t suddenly come to an end.

Main picture credit: TSMC