From the Source’s Mouth is Fusion Worldwide’s analysis of semiconductor manufacturers’ quarterly earnings call transcripts. This report provides insights into upcoming demand, capacity, and supply trends based on market information directly from the source.
From the Source’s Mouth is updated throughout the quarter. The table below summarizes key takeaways from Q2, which began on April 1st and concluded on June 30th.
Revenue increased 2.4% sequentially after a 2.6% increase in volume, which was slightly offset by a 0.7% dip in pricing. MOSFET volume expansion, inductor volume increases, and higher pricing drove revenue.
By end market, revenue was as follows:
In the ‘other’ market segments that Vishay maintains, revenue declined 7% QOQ as a result of price pressure on products sold to customers in Asia and ongoing weak consumer demand. Improved delivery of allocated products to automotive, industrial, and aerospace defense customers helped distribution revenue increase 4% sequentially, but ultimately, it fell 6% yearly.
In the automotive market, there is sustained demand in all regions for products that support increased electronic content, ADAS features, EV and hybrid vehicles, plus an improved flow of orders for legacy automotive programs because of easing supply chain bottlenecks. OEM revenue grew 19% YOY because of strong demand from automotive customers, particularly in the Americas, as they work to build up inventory. In capacity expansion news, Vishay is doing the following to support the automotive industry:
In addition to supporting the automotive industry, these expansion plans will support the industrial business segment. Industrial customers mostly normalized their inventories this quarter, and deliveries of allocated products stabilized this quarter. However, even with supply chain constraints easing, the demand in China was sluggish, and recovery has been slow. However, EV charging infrastructure and improvements to the electric grid to support charging initiatives helped keep revenue flat sequentially.
Medical customer revenue declined because of the timing of orders and mix, but there was strong demand for diagnostic equipment and implantable devices. The book-to-bill ratio closed at 1 to 3 by quarter end, which is why the market is expected to expand sequentially.
Aerospace and defense was one of the most rapidly growing end markets thanks to strong commercial aviation sales and increased government spending on weapons systems in Europe and the U.S.
Strength in the aerospace, defense, and automotive markets offset the impact of consumer market oversupply and weak demand in 5G infrastructure. Factory production levels improved modestly but remained low. With headwinds from elevated inventory levels expected to continue, predictions for Qorvo’s growth targets by segment are as follows:
For the automotive industry, there were some standout developments. Some of the quarterly highlights included:
Design win activity spanned applications like highly integrated IoT connectivity solutions within the connectivity and sensor market. Qorvo has targeted sensors and ultra-wideband as growth areas. In advanced cellular, Qorvo is growing its product portfolio for 5G smartphones, and within the year, about 45% of Android smartphones will be 5G. Qorvo expanded its connectivity system business to support top smart home ecosystem customers.
Additionally, there was a standout trend in the aerospace and defense industry, Qorvo noted that there has been an increase in a “one-to-many” migration. Companies are shifting towards a model where a single platform or system will be able to serve multiple applications or functions. In the context of aerospace and defense, this trend involves the consolidation of various capabilities and functionalities into a unified platform or system, allowing for greater efficiency, flexibility, and cost-effectiveness. Some key areas that Qorvo has identified as growing segments include:
Qorvo is supporting the AI industry through silicon carbide power devices. While AI customers are the main target, these products can be utilized by any industry looking for an efficient server power supply.
Revenue by business segment was:
Datacenter market demand remains mixed as cloud customer buying behavior is still cautious. Despite the dynamic conditions, AMD is investing in its supply chain to support strategic data center growth. While the company is forecasting results for next quarter will be flattish, they still identify data centers as a significant growth market, as a result of AI demand. In particular, some of the trends that AMD is noticing with AI are the following:
The decline based on YOY revenue resulted from lower third-generation EPYC processor sales stemming from softer enterprise demand. However, on a sequential basis, sales of these processors were more robust, specifically Gen 1, partially offset by a decline in adaptive SoC product sales. Looking ahead to next quarter, data center revenue will be flattish.
Within the embedded segment, revenue declined 7% QOQ because of weaker communication market demand. The 16% YOY increase was caused by solid demand amongst industrial, vision and healthcare, automotive, and broadcast customers. Some of the key developments within this segment included:
Gaming business revenue dipped by 10% QOQ, with higher semi-custom revenue and lower gaming graphic sales. Microsoft and Sony had healthy console demand, which drove stronger results for semi-custom SoC sales. Gaming will continue to decline next quarter due to the lack of upcoming demand.
The significant YOY decline in the client segment came from reduced processor shipments, weaker PC market demand, and ongoing inventory corrections. Revenue did increase 35% sequentially because of Ryzen 7000 series CPU sales following the launch of new notebooks from the largest OEMs. Seasonal trends should boost revenue in this segment, plus AI will be a significant demand driver for PCs. Profitability should increase next quarter, so the client segment is forecasted to grow by double-digit percentages.
Increasing interest rates, inflation, and geopolitical concerns created challenges for predicting and planning the company’s future performance. In particular, the rapidly changing business environment in China is contributing to the difficulties and causing issues with quarter-to-quarter visibility. The revenue results for Allegro’s business segments were as follows:
The business environment in the first half of the year led to favorable results for industries like automotive, as well as certain industrial segments like clean energy and automation. In automotive, about 60% of design wins were in e-mobility, showing the appetite for ADAS and the increasing electrification of vehicles. Additionally, automotive revenue outpaced production growth, which only grew about 6% in the same time. In terms of future demand, forecasts show:
However, there are concerns related to the China market, as automotive production declined by 15% in the first half of the year. While overall sales in China declined by 13% sequentially, there are multiple factors at play, including:
In the industrial market, growth was driven by clean energy and automation. Design wins for the quarter leveraged sensor technology for DC charging, residential solar inverters, and energy storage applications.
Overall, Allegro’s order backlog has come down, and lead times have fallen by about 30%, with most of them returning to standard industry norms. There are plans to further reduce lead times, especially for the company’s distribution channel and industrial customers.
Within the next quarter, sales to distribution will be down slightly, while sales to OEMs should increase marginally. Sales for the quarter will be in the range of $270M to $280M.
This was the first quarter where automotive revenue surpassed $1B, growing 8% QOQ and 35% YOY, driven by expanding electrification and the ongoing need for sensing in vehicles. Onsemi now has a 68% market share in ADAS, 27% market share in industrial, and maintains the number one position in the intelligent sensing market for automotive and industrial. The company is also number one in ultrasonic and inductive sensing for automotive and industrial.
The new standard requirements for vehicles will require higher resolution image sensors, which onsemi produces. Onsemi consequently expects revenue for the company’s eight-megapixel image sensors to more than double YOY.
Within silicon carbide revenue, there were several highlights, which included:
In the industrial market, revenue grew 5% YOY and 10% QOQ. The three divisions driving growth in this business includes energy infrastructure, factory automation, and EV charging. In particular, there was an accelerated adoption of high growth energy infrastructure applications like solar inverters, energy storage inverters and EV fast chargers. Overall, energy infrastructure revenue increased nearly 70% YOY. There was also additional strength in medical applications.
Within onsemi’s “other” segment, 5G and cloud power grew at 22%. While most of onsemi’s emerging products in digital power supply are intended for the company’s primary markets, automotive and industrial, the servers will also be utilized by the AI industry.
Overall sales and communications were lower QOQ for MPS despite increases in industrial, storage and computing, consumer, and enterprise data revenue. MPS previously called out that customer order patterns might fluctuate, which turned out to be correct. During Q2 there was an increase in order delays and push-out requests, which is complicating short-term visibility and making forecasting beyond Q3 2023 challenging.
While some segments showed sequential revenue improvements, other segments saw revenue decline. By market, the results were as follows:
Storage and computing revenue increased after being bolstered by higher commercial notebook sales. The growth in this market led to this industry accounting for 28.2% of MPS total Q2 revenue, up from 26.5% YOY.
Industrial revenue was supported by increased sales of products for power source and industrial meter applications. Despite the sequential increase, the market did falter on a YOY basis and consequently fell from 12.1% of MPS total revenue to 11.3%.
The decline in communications revenue stemmed from lower infrastructure sales. Consequently, communications sales now represent 11.2%, down from 12.9% in Q2 of 2022.
Consumer revenue improved sequentially following stronger gaming, TV, and mobile device sales. However, there was a YOY decline, which brought total sales down from 21.1% in Q2 of 2022 to 14.8%. The consumer business showed some improvement, especially in the U.S. and Asia, while other markets experienced delays and softer demand.
Automotive revenue was lower than expected due to two product launches being delayed until Q4 and Q1 because of technical issues. The power isolation module is being resampled and is intended for use in both automotive and data center applications, with a focus on silicon carbides for sampling.
Enterprise data revenue increased QOQ thanks to initial shipments of new generation AI applications, which offset softer demand for CPUs. AI is expected to continue driving demand for enterprise data products, and MPS plans to see multiple new customer applications launch within the next few quarters.
Regarding GPU business, the company holds a leading position with a large customer and is deeply engaged in future designs. There have been rumors that Renesas may be brought in as an additional source, but MPS remains confident that their strategic partnership is strong, and a secondary component supplier will not undermine the relationship. This customer aims to take a leadership position through innovation and may consider multi-sourcing to allow competition in the market.
MPS noted that their revenue and customer base has expanded tremendously over the last few years, particularly amongst Tier 1 accounts. MPS has become a designated preferred supplier with multiple Tier 1 customers in the automotive and telecom industries. In 2024 and 2025 the company hopes to grow these relationships and expand into additional industries via the following strategies:
The company observed a meaningful decrease in channel inventories both in terms of dollars and days during Q2. They believe they are in a position to continue normalizing channel inventories over the next two quarters. For Q3, revenue will be in the range of $464M to $484M. Until visibility improves, MPS is hesitant to make too many forward-thinking statements about specific business segment performance.
Hitachi energy grew significantly and is a large driver for profitability. There was a stable expansion of orders, mainly within large-scale businesses. The breakdown was:
Within the digital systems and services segment, revenue and profits increased. Some of the highlights for this market were as follows:
For Hitachi energy, the backlog of orders at the end of the quarter was significant, indicating strong demand moving forward. Nuclear energy and Hitachi power solutions profits decreased because of a decline in equity in earnings, offsetting the solid performance recorded in nuclear energy.
Within Hitachi’s connective industry, profits increased thanks to expanding sales of digital solutions and products for industrial fields. The adjustment phase currently going on in the Chinese real estate market impacted building system revenue. Other major developments in the connective industry included:
Celestica’s two business segments, advanced technology solutions (ATS) and connectivity and cloud solutions (CCS), both increased this quarter. ATS revenue increased by 24% YOY and 9% sequentially. CCS revenue increased by 5% YOY and 3% sequentially. The breakdown of technologies in these groups is as follows:
In Celestica’s ATS segment, the company saw double-digit YOY growth after ramping new green energy programs and the return of commercial aerospace demand. Celestica has also seen an improvement in operational efficiencies thanks to the material supply environment’s continued normalization. Some additional highlights for this business include:
For next quarter, ATS will increase in the low double-digit percentage range YOY. Growing demand in industrial, healthcare, and aerospace and defense business will be partially offset by continued market headwinds in capital equipment. Capital equipment remains muted due to lower demand in the wafer fab equipment market.
In Celestica’s other business segment, CCS, there was solid growth in the hyperscale business as the company continued to invest in AI and machine learning. Some of the key developments within the hyperscaler market include:
Over the last 90 days hyperscaler demand has continued to increase, which drove the successful results for Q2 and pushed Celestica to increase its outlook for the year.
However, CSS revenue is expected to be flat YOY in the next quarter following headwinds from communications revenue, which declined by 15% YOY this quarter. The communications end market is expected to decline in the high single digit percentage range YOY, thanks to lower anticipated demand in networking, including in Celestica’s hardware platform services business.
Here is a breakdown of Flex’s agility market and its earnings for Q2:
After growing 30% in 2022, the communications, enterprise, and cloud computing (CEC) markets saw challenging comparable sales after a year of hypergrowth. Despite this, did have some additional callouts for CEC market strengths:
Another important secular trend is the proliferation of the global renewable energy transition. Some noteworthy developments from this quarter were:
Foundry Services Increased by 4x YOY and Nearly Doubled Sequentially.
Q2 results for Intel exceeded expectations despite the challenges of inventory correction, macroeconomic uncertainty, and a slower-than-anticipated recovery in China. The company's improved profitability was driven by the following:
There was a modest recovery in consumer and education segments, plus added strength in the premium segments. Thanks to close partnerships and communication with customers, Intel was able to bring client CPU inventory down to healthy levels. Concerning inventory, the sustained recovery will continue into the year's second half as overall supply levels begin to normalize.
Here are the business results by unit:
While the average selling price declined modestly due to higher education shipments and sell-through of older inventory, the CCG business segment generated more than $500M sequentially higher revenue. The shipment increase offset the impact of the preparation for the second half of the launch for Meteor Lake.
Within the DCAI business unit, FPGAs delivered a third consecutive quarter of record revenue, increasing 35% YOY. The strength in this market should continue, but demand will as customer backlog comes down.
NEX revenue was bolstered by relatively stronger demand trends across broad-based markets like industrial, automotive, and infrastructure. However, elevated inventory levels and continued softness in the network and edge industries caused lower than expected revenue results and a 38% sequential decline.
The robust increase in the foundry business was due to increased packaging revenue and higher sales of IMS nanofabrication tools. However, operating losses caused by higher factory startup costs offset this. Overall, the customer inventory burn has slowed, and the market is moving toward a better equilibrium.
Xeon business increased by double digits sequentially, and Intel expects that the YOY declines within the DCAI market should diminish throughout the second half of 2023. However, there were some significant trends within the TAM market, both negative and positive, which had mixed effects on overall results. This included:
Q3 revenue will be between $12.9B and $13.9B. Data center, network, and edge markets will continue to feel the impact of mixed macro signals and elevated inventories. Meanwhile, IFS and Mobileye will generate strong sequential and YOY growth. Foundry services will help Intel capitalize on AI demand and create a diversified and resilient global supply chain.
There were three major factors that impacted revenue this quarter, including:
Outside of demand for premium smartphones with low prices, sales in Samsung’s other business segments were sluggish and caused a delayed recovery for semiconductors. The consumer, display, and foundry markets all declined YOY. However, they did increase QOQ, which highlights that even with weak demand, there are some signs of improvement. Near-term inventory cycle issues will continue and have an impact on utilization, but in the long-term manufacturing capacity will be supported by the industry megatrends surrounding HPC, 5G, and AI-related demand.
Despite a slight recovery in the device experience (DX) division, consolidated revenue fell by 5.9% sequentially. The following developments had the most considerable effect on overall DX division revenue:
Within the memory market, demand fluctuated based on the application. The biggest movements for Samsung’s subdivisions were generative AI driving server demand, price drops, and more stable inventory levels for DRAM and NAND. There were some additional stand-out developments in the DRAM and NAND markets.
In the display market, mobile panel business results were similar to the DX division. Even with Q2 usually being a seasonally weaker quarter, sales were focused mainly on premium TVs and digital appliances, supported by improved cost structure and operational efficiency. Network business declined in North America and Japan. However, the digital appliances business improved profitability, bolstered by consumer audio demand for portable and KWS products.
Global IT demand in the business environment will recover gradually in the year's second half. The hope is that there will be improved results for the component business, but ongoing macro risks and challenges associated with a demand recovery are also likely to persist, so while there is optimism surrounding a recovery, it is not guaranteed.
For the second half of the year, the market will likely stabilize as customer inventory levels come down. The biggest trends moving forward will be:
The downturn in Renesas’ key markets was caused by a slow recovery for automotive production, heightened inventories, and increased costs for raw materials impacting gross margins. Revenue results were as follows:
Industrial has been a strong market, but the continuous YOY growth will likely slow its pace. The increase in this market was primarily driven by demand for analog products, specifically timing ICs and timing devices. The market has likely bottomed in Q2 for PCs and consumers, so there should be modest improvements from Q3 onwards. In relation to data centers, it’s too early to state when demand will recover. But, the progression of DDR5 may result in a faster recovery than initially anticipated.
For automotive, the results were less robust than initially anticipated. The enhanced growth of EVs and reduced demand for internal combustion engine vehicles has led to some uncertainty, especially among Japanese customers. Cash flow amongst large Tier 1 customers remains tight as companies try to control their inventory levels from Japan to China.
Gross margins were 1.9 percentage points above forecast due to a rise in costs for product mix and raw materials and a decline in production. The reduction in utilization also led to a slower-than-expected recovery. However, there were bright spots for the industrial, infrastructure, and IoT markets regarding increasing R&D.
The days of inventory (DOI) declined in Q2. Infrastructure DOI fell one day to 106, while automotive also saw a minimal decline. On the other hand, sales channel inventory, in relation to weeks of inventory, all increased QOQ. Overall, the weeks of inventory increased by about nine weeks overall.
On-hand inventory is expected to continue its increase in Q3 due to the decline in long-term contract and utilization rates. In terms of inventory, Renesas hopes to:
Order backlog also increased this quarter, but the situation is relatively slow as Renesas still needs to work through the on-hand inventory accumulated so far this year. In addition, the departure from NCNR orders also added to the ample inventory. The company has determined that when orders come in, they come in based on actual demand and, therefore, a shorter period. Lead times are short, so this is not an issue, especially when combined with the ample inventory that Renesas already has available.
Additionally, AI has yet to significantly impact business, but from Q3 onwards, there may be a slight implication for operations. In the immediate future, the AI effect will be most significant for memory and power architecture as customers shift to the next generation of technology.
STM leveraged a balanced end-market approach, diverse product portfolio, and strong customer relationships to achieve 12.7% YOY growth in Q2. This result was driven by growth in the automotive and industrial markets. Revenue by product group is as follows:
ADG and MDG were expected to grow YOY, and ADG exceeded expectations by expanding significantly. ADG's double-digit expansion was largely due to the robust strength in the automotive market and demand for power discretes. MDG's growth was smaller but still above 10%, thanks to demand for microcontrollers (MCUs) and RF communications.
The decline in the AMS market was the result of the following trends:
The inventory correction impacting the supply chain caused STM's inventory level to reach 126 days. The remainder of the year's goal is to reduce inventory by 10 days. STM hopes to achieve this by reducing production in Q3 and Q4, especially at fabs more exposed to the weakness in the personal electronic and computing industries.
Operating expenses (OpEx) were more than expected this quarter due to one-time charges and delayed grant funding. OpEx should decline in Q3 as those R&D grants materialize and overall costs decrease. Due to these factors, OpEx expenses will range from $880M to $890M.
Three factors have driven the rise in demand within China for STM's silicon carbide devices:
Because of this demand, STM has announced a joint venture with Sanan Optoelectronics to build high-volume 200mm silicon carbide device manufacturing in China, aiming to create a vertically integrated silicon carbide value chain for Chinese customers. This venture will start production in Q4 2025, with full build-out anticipated in 2028.
In addition, STM is also pursuing GaN technology to address various markets. To that end, STM has three major projects in the works:
For Q3, revenue will be around $4.38B at the midpoint, with ADG division revenue expanding by over 20% YOY. MDG revenue will also grow, but only slightly, in Q3. Alternatively, the imaging, sensor, and MEMs division will decrease by 31% YOY. This ongoing weakness is primarily due to the lingering lack of demand in the personal electronics and computer verticals. Demand should gradually improve in Q4 and Q1 next year as the market works through excess inventory.
SK Hynix revenue was 44% higher sequentially thanks to expanded sales of premium products like high-density DDR5, high-performance LPDDR5 and HBM. Shipment volume and average selling prices increased. In particular:
The memory market has slowly started to recover in comparison to the beginning of the year. Driven by the AI demand trend, sales for high-density, high-performance memory, and AI servers increased. AI servers use at least double to 8x more memory compared to traditional servers, so the memory market will be largely supported by the AI industry moving forward. In addition to being bolstered by AI, memory product production cuts have helped memory inventories come down to more stable levels.
Demand in the second half of the year is expected to increase, thanks to enterprise and gaming PCs. Smartphone demand is also anticipated to improve, as mobile demand in China was rather subdued. Additionally, the demand for high-density and high-performance LPDDR5 is expected to expand. Reduced IT spending, economic downturn, and inventory adjustments by CSP companies will continue to cause headwinds for the server market, but AI should offset some of these trends.
While memory demand has seen minimal improvements, it is still deficient in relation to the elevated levels of inventory. It will still be some time before demand exceeds supply. Due to the overall weakness in the memory market, SK Hynix plans to further reduce NAND production.
The macro end market conditions that led to a challenging business environment will continue throughout the fiscal year, which is why Seagate has implemented the following strategies:
The pace of the economic recovery in China has been unpredictable, especially within the mass capacity markets. While sales are still well below historical levels, there has been increased demand within the VIA markets and specific regional cloud and enterprise OEM customers. However, forecasts indicate that sales will remain relatively stable throughout the rest of the year. The overall market highlights for Seagate were:
Globally, nearline demand from enterprise OEM customers has remained soft. The pace of inventory absorption, especially amongst U.S. cloud customers, has slowed due to companies tightening operating budgets in response to the near-term macroeconomic uncertainty. Additionally, efforts to optimize existing workloads on-premise and in the cloud have helped enterprise customers and deferred mass storage deployments.
Because of these factors, Seagate has reduced shipments to several large cloud customers to accelerate inventory absorption and protect financial returns, affecting near-line demand from enterprise OEM customers.
While it will take a few more quarters to reach normal inventory levels, this process may be prolonged by shifting spending priorities as customers focus on accelerating the build-out of AI infrastructure. This development will likely delay the recovery of storage demand, but the following stages for AI will be long-term growth drivers for Seagate.
Additionally, the ongoing migration of workloads to the cloud will coincide with these phases and continue to drive demand for Seagate products. These trends will influence the entertainment and consumer industries, plus there are further applications within the healthcare industry.
For the upcoming quarter, Seagate expects minimal mass capacity improvements to offset legacy market declines. Non-HDD revenue for system business will dip sequentially. Seagate’s September quarter revenue will be $1.55B, plus or minus $150M. To support revenue, the company is focused on managing costs, optimizing manufacturing capacity, and being cautious about overbuilding to maintain financial performance.
This quarter's most significant highlight was MaxLinear's infrastructure business, driven by demand for 5G wireless backhaul. MaxLinear is well positioned to support the ongoing rollout of millimeter wave technologies, based on the company's design win momentum and partnerships with Tier 1 equipment suppliers. Overall, the results for Maxlinear's business segments were:
Some headwinds for the rest of MaxLinear's business impacted the broadband access, connectivity, and industrial multimarket. The trends that led to a decline in revenue for all business segments, excluding infrastructure, included:
MaxLinear is confident that the market will recover, and revenue will grow. AI continues to drive significant design win activity for 5-nanometer CMOS Keystone 800-gigabit optical PAM4 solution, adoption of 800-gigabit solutions, and a growing desire for a broader customer supplier base. Thanks to the design win activity and ongoing customer pipeline, MaxLinear intends to ship small volumes of the industry's first 5-nanometer CMOS 400-gigabit and 800-gigabit PAM4 DSP production-ready silicon towards the end of 2023.
MaxLinear will be focusing on innovation and execution within infrastructure moving forward. The demand for Wi-Fi, fiber broadband access gateways, and wireless infrastructure will help support further growth, with some of the most significant opportunities in optical and wireless infrastructure. Part of the strategy for this market entails the following:
However, the inventory burn that affected Q2 results may continue into the first half of next year, depending on demand recovery. Q3 revenue will range from $125M to $155M. The continued rationalization of product inventory with direct and channel customers will result in all four end markets declining quarter-over-quarter. While a minimal recovery may materialize in Q4, visibility is limited, and forecasts remain cautious.
Silicon Laboratories experienced market erosion and weak demand that had an impact on both its Home and Life (H&L) business, as well as its Industrial and Commercial (I&C) business. For the company’s H&L business, sales and revenue were lower due to customers still navigating higher inventory levels. However, despite market slowdown, the I&C business unit showed resilience and achieved record quarterly revenue thanks to strength in segments like connected equipment, commercial and retail space, electronic shelf labels, and smart metering.
The dynamic market environment made it difficult to determine the extent to which production ramps in the second half of the year would offset market headwinds.
Silicon Laboratories has an expanding opportunity funnel, which stood at over $18B, representing a 17% increase over the same time last year. The company saw additional growth in its design win pipeline with an increase of 23% YOY in the first half of 2023. The company continued to expand its Series 2 product portfolio, which is capturing market share, and mentioned a forthcoming Series 3 platform, representing a significant leap forward for IoT (Internet of Things).
Bookings were low this quarter as customers continued to digest excess inventory. Silicon Laboratories expects the ongoing weakness in demand to be global, with a broad-based slowdown across customers, segments, and geographies. The upside of the current market is shorter order lead times, but the downside is the reduced visibility and limited customer confidence in the current demand as the booking patterns continue to be impacted.
Due to this weakness, Q3 revenue guidance is in the range of $190M to $210M, with both business segments expected to decline.
The Q2 results were at the top of Teradyne Inc.’s earnings guidance, thanks to improved gross margins, a resilient memory test market, and increased system-on-chip (SOC) test market revenue, resulting in $684.44M total revenue in Q2. The stronger results were partially offset by robotics demand being softer than expected and challenges related to the supply of specific components, mainly in the analog and linear logic areas.
Overall, the test business performed better than expected, which will likely continue based on this quarter’s numbers (listed below), and market trends that favor a majority of Teradyne’s business segments:
Diving deeper into each segment:
Within the SOC test segment, the total addressable market for automotive will grow more rapidly than the rest of the SOC market. This forecast is supported by the fact that demand from the automotive market within the SOC test segment pushed revenue $300M higher than April outlooks previously stated. EV and hybrid demand, along with broader adoption of ADAS, cabin lighting, and infotainment, as well as the high-test intensity required for automotive quality requirements, will drive this momentum.
The tester market performed well for the wireless and system tests business, but demand was muted and consistent with the outlook discussed in April. For wireless and system tests, there is a similarly complex roadmap driving business, laying a solid foundation for the projected expansion.
Robotics was weaker than Teradyne had forecasted since demand dropped over the last three months due to worsening economic trends impacting manufacturing. For the robotics market, demand has significantly softened thanks to economic conditions and low PMIs in Europe and the U.S. Lead times are now under five weeks. Despite the softness of this market, demand is strong for human-scale automation projects. Lead generation from automation trade shows set a new record this quarter, but customers are still reluctant to place orders in the short term.
For semiconductor testers in particular, an ongoing excess inventory correction cycle has persisted for the past four quarters, with the mobility part of the market taking the hardest hit. The hypergrowth expected in the semiconductor test market remains unchanged as 3-nanometer has already begun to ramp up, with 2-nanometer and gate all around scheduled to ramp up soon.
The memory test market segment stayed true to April outlooks, with NAND, DDR5, and high bandwidth memory (HBM) DRAM contributing strong results. These devices are being used for data center applications and are leading retooling efforts. Memory test sales went up 49% versus Q2 last year thanks to the technology driven buys of customers within the semiconductor test market segment.
Looking ahead to the next quarter, Teradyne anticipates the memory test market revenue will be at the low end of $900M. This market has felt the effects of AI demand, especially within the HBM DRAM segment, as more robust test demand for Magnum products should continue until the end of 2023. Historically, the HBM market share of the memory industry has been minimal. Still, it is expanding rapidly and will shift from less than 5% of the test market in 2022 to somewhere between 10% to 15% this year. The robust nature of this market is offset by weaker capacity buys, particularly in Flash for mobile applications. Despite the downturn going on at the moment, the demand for increasing device complexity has exponential potential as the industry applications are varied. Cloud and edge AI applications like ADAS systems, spatial computing, and privacy-focused consumer applications are all demand-driving factors.
For the companies that deal in cloud computing, cloud AI, and edge AI, there has been an uptick in efforts to differentiate solutions via control of chip design. These efforts began a few years ago and are now starting to emerge in data centers and vehicles.
The VIP portion of the compute segment will likely expand faster than the overall compute segment. Within the advanced packaging market, stack dye has been more broadly adopted for high bandwidth memory and chiplets for processors.
Looking ahead, Q3 sales will range from $650M to $710M. For the rest of the year, the SOC test market will be between $3.7B and $4.1B. Automotive segment strength will continue to offset the ongoing weakness in the mobility market. In addition, the AI industries-enabled cloud computing applications will drive test demand for compute and networking.
United Microelectronics Co (UMC) has been able to efficiently generate profit through its core operations, contributing to the total Q2 revenue of TWD 56.3B. The operating profit margin increased by 27.8%, while expenses toward operations were flat. UMC’s improvement to its product mix, mainly in the 12-inch portfolio, created a higher average selling price, resulting in a sequential increase of 3.8%.
Here is a breakdown of the contributing product mix based on processing technology:
The numbers by region:
The numbers by application:
The outlook for wafer demand is uncertain for the upcoming quarter, likely due to the longer-than-expected inventory correction still affecting the electronic component supply chain. While there was a limited recovery in Q2, overall end-market demand remains weak. However, 22/28-nanometer technology business will maintain resilience thanks to the newly ramped capacity in UMC's P6 in the Tainan Fab.
This strength is thanks to UMC's leading position in edge specialty technologies, like embedded high voltage, contributing to stable demand for advanced nodes. In addition, UMC is gearing up to create the necessary silicon interposer technology and capacity to fulfill emerging AI market demand from customers. This new offering indicates that the company is focused on addressing new market opportunities in the AI and advanced computing space.
Overall, wafer shipments will drop by about three to four percent next quarter. The average selling price for UMC is expected to increase by about 2%, as rising costs may erode gross margins, and capacity utilization remains cautious as production levels work to align with demand.
Texas Instruments (TI) saw an overall decrease in revenue in Q2 due to the continued weakness across most markets, except automotive. The weakness in industrial, communications equipment, and enterprise systems speaks to the challenges of low demand for TI products. Revenue declined 13% year-over-year (YOY) and three percent sequentially to $4.5B.
Here is a breakdown of the Q2 revenue stream:
Gross profit margins decreased by 540 basis points YOY due to lower revenue and increased capital expenditures (CapEx). This suggests that TI is struggling to maintain healthy profit margins as it is focusing on supporting expansion during a time of low demand. The increase in CapEx is intended to support revenue growth for the next 10 to 15 years. This funding will build more internal manufacturing capacity, increasing inventory levels. Unfortunately, at the moment, there is much uncertainty around forecasting and production planning as orders continue to drop due to customers working through inflated inventories.
Because of these challenges, Q3 revenue will likely range from $4.36B to $4.74B. All markets, except for automotive, are expected to stay flat or decline. In addition, after three consecutive quarters of increasing cancellations and pushouts, cancellations remain at elevated levels and don’t show significant signs of decline. Despite the mixed results and questions on management strategy, TI intends to see the CapEx investment approach through and not cut production or utilization rates until those investments can begin to generate returns.
NXP’s revenue was at the high end of guidance for the quarter, totaling $3.3B. Trends in all end market segments performed better than expected, and NXP has maintained distribution channel inventory at a 1.6-month level. The company also had more substantial gross margins, offset by higher R&D investments to support mid and long-term growth targets.
Here are the numbers by end market:
Despite the mixed results, all end-segment revenue was at the high end of guidance.
The automotive and core industrial businesses have been concentrated this year, with only minor areas of supply shortages predicted to linger through the end of the year. Strong seasonal trends have been recorded in the mobile segment, particularly in the premium portion of the market, which is on track to continue in Q3. Demand for the communications and infrastructure segment has been soft for cellular base station markets. However, the overall results from the first half of 2023, combined with guidance for Q3, show that NXP is successfully managing its business through the cyclical downturn in consumer exports. This is primarily due to the strength in automotive, core industrial, and communications infrastructure markets.
Additionally, there is still some instability stemming from a supply issue impacting European tier 1s in the automotive sector. NXP reported a problem in Q1 revolving around excess issues with golden screw components, which affected pockets of inventory. Compared to the supply challenges over the last several years, this is moderately minor volatility as lead times and order patterns have essentially returned to normal levels. However, this situation has resulted in strict inventory targets and a more extensive conversation amongst OEMs, automotive OEMs, and automotive Tier 1s on how much stock each partner should hold.
For Q3, revenue is anticipated to be $3.4B, a decline of about 1% YOY and a sequential growth of around three percent at the midpoint.
Here is the anticipated revenue stream from NXP for Q3 based on forecasted market trends:
Should a strong rebound in demand emerge, NXP is confident that it has enough on-hand inventory to satisfy an uptick in orders. This certainty is supported by the fact that the company continues investing in its production capacity. However, the higher input costs are not hitting the company’s gross margins and are being passed on to the consumer, which could cause demand to waver if customers turn to the open market or alternative sources to secure cost savings opportunities. NXP is highly focused on collaboration with suppliers and customers to create long-term supply availability and maintain demand, especially for the automotive and core industrial end market segments.
Taiwan Semiconductor Manufacturing Co.’s (TSMC) total revenue for the quarter was $48B, a decline of 6.2% sequentially due to global economic uncertainty and customer inventory adjustments influencing demand. Despite the market downturn, TSMC remains dedicated to investing in R&D to support N3 and N2 development. Furthermore, TSMC’s strongest markets this quarter were automotive and digital consumer electronics (DCE), with DCE seeing the most prominent increase in sales at 25%.
Here is the revenue by technology:
Here is the revenue each segment contributed to TSMC’s total revenue stream in Q2:
Global economic uncertainty, customer inventory adjustments, and the ramp-up of N3 and overseas fab expansion contributed to the gross margin challenges for the year. Stricter cost control and improved foreign exchange rates partially offset lower capacity utilization and higher electricity costs. However, gross margins still decreased by a little over two percentage points sequentially. Despite the boom in AI-related applications, the overall cyclicality of the semiconductor industry did impact TSMC's business.
Even with the decline in revenue and demand for HPC and smartphone platform, the earnings from these markets will support the ramp-up for the N3, which will occur throughout the rest of the year. As part of the N2-technology platform, TSMC also developed N2 with a backside power rail solution, which is best suited for HPC applications. In addition, N2-watt performance and power benefits are well-positioned to fulfill the industry's need for energy-efficient computing. Backside power rail, which provides ten to 12% added speed and ten to 15% larger density boost on top of baseline tech, will hopefully be available in the second half of 2025.
However, there have been staffing challenges that are complicating production timelines and expansion projects. Skilled workers with the necessary experience in equipment installation in a semiconductor-grade facility are hard to find. Despite sending Taiwan technicians to train local skilled workers, the manufacturing schedule for N4 process technology has been delayed until 2025.
Three-nanometer technologies will support Q3 revenue, even with headwinds from ongoing inventory corrections. Despite some challenging market conditions, the industry megatrend of 5G and HPC continues to drive demand for performance and energy-efficient computing, which in turn is increasing the need for leading-edge technologies. While the impact of AI-related applications has not been able to outweigh the industry's recurring trends of fluctuating demand, AI will lead the need for technology and support TSMC's long-term growth. Because of this, TSMC's HPC platform will likely be the main engine and most prominent contributor to growth in the next several years.
ASML reported net sales at the higher end of guidance, equaling €6.9B, and total net revenue for Q2 of €1.9B. Overall, ASML’s bookings increased this quarter to create a backlog of about €38B. ASML shipped 12 EUV systems, with net system sales driven by the logic and memory markets. The logic market accounted for 84% of sales, and the memory market accounted for the remaining 16%. Memory market bookings increased from 21% in Q1 to 31% in Q2, indicating that leading memory makers are undergoing technology transitions and leading retooling efforts. Installed base management sales were €1.3B as guided.
EUV and deep UV (DUV) demand visibility have been unpredictable this quarter, as the timing of customers’ order placement has deviated from normal patterns. The fluctuations in timing are primarily due to the following factors:
Despite these variations, DUV supply remains limited and unable to meet demand.
The Chinese market has closed any gaps in DUV demand via orders for tools at mature and mid-critical nodes. ASML is applying for export licenses with the Dutch government to permit continued shipments of advanced immersion DUV lithography machines. Restrictions have already had an impact on business, which is why most of the business in China is largely dedicated to mature and mid-critical nodes. Mature and mid-critical nodes have numerous applications for different industries, including:
With China leading mid-critical and mature semiconductor production for the semiconductors utilized by these markets, it is also increasing competition in this space. Both China and its competitors will require ASML products to expand fabs, which will support revenue for ASML in the short term and down the road via maintenance revenue.
ASML plans to ship 375 DUV systems with a mix of over 25% immersion. The new fast shipment process for immersion systems will allow the company to recognize sales revenue upon shipment, as customers have agreed to reduce the acceptance test procedure that was initially required. This will increase ASML's revenue by about €700M in 2023 and reduce the delayed revenue for the year. As a result, the total expected year-over-year (YOY) growth for non-EUV business has gone from last quarter's total of about 30% to 50%.
Lingering supply chain issues and delays in fabs coming online are still causing headwinds for EUV sales. ASML expects to ship about 52 EUV systems this year, equaling YOY growth of 25% versus the expected 40%.
Current utilization rates, market uncertainty, and customers delaying productivity and performance upgrades have impacted ASML's installed base business. Growth for this market segment will only be about five percent this year due to the impact of these trends.
Looking ahead, net sales for the upcoming quarter will be about 30% versus the previously stated over 25%. Q3 net sales will be between €6.5B and €7B. Installed base management sales will be around €1.4B. Additionally, the economic recovery predicted for the second half of 2023 has become a moving target that will likely wait till 2024 to materialize fully. However, 2024 is still looking strong for ASML due to its extensive backlog and firm product demand. With lead times currently in the range of 12 to 18 months, ASML doesn’t plan to reduce capacity in 2024 because of the forecasted demand coming from new fabs in the next year and stretching into 2025.
While ASML is hesitant to make forward-thinking statements, the 2025 outlook is also shaping up to be substantial due to the ramp-up of some significantly advanced fabs in the logic space. However, this demand will depend on 2024 and the macroeconomic situation, as there is still some uncertainty around whether or not those fabs will place orders right away.