Summary
Processor: CPU sales continued to recover as channel inventory normalised. Global transition towards accelerated computing and AI still driving demand for higher-end Data Centre GPUs. Intel and AMD both posted sales numbers that beat expectations, led predominantly by a normalisation of channel inventory levels. Forward guidance was also quite upbeat, with both companies expecting a re-acceleration in growth for the upcoming quarter due to growing demand and healthier inventory. The expectation is that near-term CPU growth will be led by a PC upgrade cycle due to: 1) Windows 10 end-of-service in sight; 2) higher computing power to support increasingly complex applications. For GPUs, NVDA’s revenue tripled YoY as customers continued to invest heavily in Data Centre GPUs to power accelerated computing applications like inferencing LLMs and developing generative AI applications. NVDA also guided 4Q23e sales growth to continue accelerating, driven by continued growth in customer commitments for its Data Centre GPUs, higher ASPs, and an expanding supply chain.
Memory: Demand for high-performance DRAM grew, driving up ASPs as inventory levels also normalised. Further improvements into 4Q23e as AI-related demand expands. Micron, Samsung, and SK Hynix all reported sequential increases in revenue as: 1) PC and mobile inventory levels normalised; 2) demand for high-performance DRAM grew; 3) ASPs rose. On a YoY basis, revenue continues to decline, although less than 2Q, with net loss also narrowing YoY vs 2Q23. Production cuts and increasing demand have reduced inventory levels significantly, with prices expected to have bottomed. Demand for High Bandwidth
Memory (HBM) – DRAM, continues to increase for AI servers, while the industry is also seeing increasing demand for high-density NAND products. Traditional server demand remains weak, as Cloud Service Providers (CSPs) focus more on higher-compute AI servers. Looking forward, all 3 companies seem optimistic about a turnaround in the memory segment, driven by AI-related demand for DRAM. Micron guided to revenue growth for the first time in 18 months, while Samsung and SK Hynix intend to increase supply of HBM to support growing customer commitments.
Equipment: Still in a downcycle with low utilisation rates. Positive outlook commentary, although revenue guidance says otherwise. Semiconductor equipment makers continued to see a moderation in orders as the whole industry remained in a downcycle, with customers still very cautious in the current macro environment, elevated upstream inventory level, and low utilisation rates. NAND memory continued to be weak, with softness also in industrial and automotive end-markets. However, ASML, the main supplier of lithography equipment saw healthy growth of 25% YoY due to its strong order backlog of >EUR35bn. AMAT’s revenue was flat, while Lam saw another YoY contraction due to its high exposure to memory customers. All 3 companies were quite positive on their outlook, as they look to increased AI spending trends, and a recovery in the semicon industry, although revenue guidance would indicate perhaps it is still too early to call. China export controls are expected to only have a mild impact.
Foundry: AI-related demand still limited by supply, with recovery in demand from China still slow. HPC expected to drive revenue growth in the long term. TSMC reported a 15% YoY revenue decline for the quarter as customers continue to adjust inventory levels and demand remained muted. Revenue was supported by a strong ramp-up of its 3nm chips, and increasing demand for 5nm used in high-performance computing (HPC). TSMC also saw sequential growth (33% QoQ) in its smartphone segment, stating that its starting to see early signs of stabilisation in the PC and smartphone end markets (TSMC’s 2 largest segments). TSMC guided for sales to sequentially increase ~11% QoQ, although YoY sales is still expected to be down slightly. For FY24, it expects revenue contraction of ~8-10% YoY, as that robust AI-related demand is still yet to offset overall softness in the semicon industry, with growth in AI-related products still restricted by limited supply. TSMC still expects some customers to continue adjusting inventory levels into 4Q, with a slower-than-expected recovery in demand from China. In the long-term, the company expects HPC to be a major growth contributor as edge devices begin incorporating AI functionality.
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Jonathan covers the US technology sector focusing on internet companies. Formerly a national and professional athlete, he graduated from the University of Oregon with a Bachelor’s Degree in Social Sciences.
