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A week ago, Semiconductor Industry Watch published an article titled"The chip crash is all thanks to Trump"In this article, we introduced how the chip industry's market value plummeted under the influence of Trump's comments on the chip industry and related US policies.

But now, as overseas chip giants have released their financial reports, the chip industry has ushered in a new round of critical hits. However, unlike the industry panic caused by uncertain news seven days ago, this time the chip market plummeted completely due to the drag of performance data and expectations.

So much so that I kept saying to my friends in the industry yesterday:"The panic caused by NXP was pulled back by TI, and then pushed into a deeper abyss by Renesas and ST."

NXP sounded the alarm, TI kept its composure

Dutch chipmaker NXP said in a statement on Monday that its revenue in the second quarter ended June 30 was $3.13 billion, down 5% year-on-year. Specifically, the automotive division's revenue was $1.73 billion, down 7% from the previous quarter and 4% from the previous quarter; the industrial and Internet of Things division's sales were $616 million, up 7% year-on-year and 7% from the previous quarter; the mobile division achieved sales of $345 million, up 21% from the same period last year and 1% from the previous quarter; the communications, infrastructure and other divisions achieved revenue of $438 million, down 10% from the same period last year and 23% from the previous quarter.

Data from the London Stock Exchange showed that NXP's second-quarter revenue saw its biggest drop in four years, and its automotive chip sales also saw their biggest drop in more than three years. It is worth mentioning that when Mr. Huang's automotive chip department's revenue not only made NXP uncomfortable, but also made the industry feel the chill brought by NXP.

Holger Mueller of Constellation Research said NXP's latest results are a reminder that not every chipmaker's fortunes are tied to those of the AI ​​industry. He explained that the company is more like an old-school chipmaker that operates in a more mature industry sector and is subject to industry cyclicality.

"Diversification is usually one of NXP's strengths, but that has not been as evident in recent months, with growth in its industrial and IoT and communications infrastructure businesses offset by declines in its automotive and mobile businesses," Mueller said. "Now, NXP management needs to pull itself together, repeat what it did in the most recent quarter, deliver on expectations and work to find new avenues for growth."

At the financial conference, NXP looked ahead to the third quarter, and NXP expected the company's quarterly revenue to be between $3.15 billion and $3.35 billion. According to data compiled by Bloomberg, this median value was lower than the average analyst expectation of $3.35 billion. The company's CEO Kurt Sievers warned that inventory adjustments by NXP's top customers will continue until the second half of 2024, which is beyond initial expectations. Sievers expects the company's annual revenue in 2024 to fall to the low single digits. NXP expects internal inventory levels to begin to decline in the fourth quarter and return to normal in 2025.

"We will continue to manage the things we can control to position NXP to deliver strong profitability and earnings in a challenging demand environment." Kurt Sievers.

It is precisely because of these performances and expectations that NXP's stock price has seen its biggest drop in four years.

The next day, analog chip giant TI released its financial report. Although TI seemed to be in winter, the company's management's expectations brought some confidence to the industry.

According to the data, Texas Instruments' second-quarter revenue fell 16% to $3.82 billion from $4.53 billion in the same period last year, and revenue increased 4% from the previous quarter. According to reports, this is the seventh consecutive quarter that the company has seen a decline in revenue. In terms of profit data, the company's second-quarter net profit was $1.13 billion, or $1.12 per share, while the net profit in the same period last year was $1.72 billion, or $1.87 per share.

“Industrial and automotive markets continued to decline sequentially, while all other end markets grew,” TI CEO Haviv Ilan said in a press release. He further noted that within TI’s industrial segment, about half of the markets are still digesting inventory, while other markets have resumed order growth.

Texas Instruments CEO Haviv Ilan went on to say that China, the world's largest semiconductor market, has resumed growth after its electronics manufacturers finished clearing out their idle component inventories. Ilan said Europe and Japan are still in the early stages of this process. "Our China business performed well this quarter. There are signs that customers have reduced their inventories," Haviv Ilan went on to say.

Chief Financial Officer Rafael Lizardi bluntly stated that the current cycle is unusual because different regions and geographies perform differently. "Texas Instruments' factories are currently operating at close to full capacity and inventories are basically flat. Executives also said that the company can complete most orders as soon as they are received, which shows that supply and demand are basically balanced." Rafael Lizardi revealed at an investor meeting.

Looking ahead to the third quarter, TI expects revenue to grow sequentially, mainly as electronics manufacturers prepare for the year-end holiday shopping season. Still, the Dallas-based company is refusing to predict when the chip market will fully recover.

However, Raymond James analyst Melissa Fairbanks told clients in a note beginning with "Turning Points" that the industry is encouraged by "stabilization of TI lead times and lower order cancellations." But Raymond James' Fairbanks also remained cautious: "While we are encouraged by signs that a cyclical bottom is forming for the company, with margin support improving, the stock price close to recent highs and high capital expenditure intensity, we remain on the sidelines at this time."

ST further lowers expectations, Renesas hits biggest drop in 15 years

As mentioned above, today, two other chip giants, ST and Renesas, delivered a double blow after TI gave the industry a little warmth.

First, let's look at chipmaker STMicroelectronics. According to the financial report, the company lowered its full-year revenue and profit margin expectations for the second time due to weak industrial orders and falling demand for automotive chips, which caused its stock price to fall sharply by 13.5%. It is expected to record the largest single-day drop in more than four years.

The French semiconductor company said in a statement on Thursday that sales this year will fall to between $13.2 billion and $13.7 billion. That's down from a previous range of $14 billion to $15 billion. In January, the chipmaker forecast annual revenue of up to $16.9 billion.

"This quarter, contrary to our previous expectations, industrial customer orders did not improve and automotive demand declined," ST CEO Jean-Marc Chery said in a statement. He said that automotive revenue was lower than expected, offsetting the growth in the company's personal electronics business sales. Jean-Marc Chery further disclosed in a conference call: "We are facing a longer and more pronounced industrial adjustment than expected due to weakening demand and a sharp inventory adjustment."

Judging from ST's presentation materials, the performance of the European chip giant is shocking.

As shown in the figure, among the four major departments of the company, except for the digital IC and RF product lines, which grew month-on-month, all other products declined year-on-year and month-on-month. In particular, the company's proud MCU business fell by 46% year-on-year and 15.7% month-on-month. The hidden demand and the challenges brought by China's domestic substitution were beyond the author's expectation. As for the P&D business and AM&S business, they also fell by double digits year-on-year and single digits month-on-month.

From the perspective of the terminal market for chip applications, as shown in the above figure, the automotive chip business, which accounts for half of the company's business, fell by 15% year-on-year and 8% month-on-month; the industrial market, which contributed 20% of revenue, fell by more than 50% year-on-year and 17% month-on-month. This also explains why Jean-Marc Chery is so pessimistic about the industry.

“ST’s revenue decline was so sharp that they cut their forecast by 7 percentage points,” said Sebastien Sztabowicz of Kepler Cheuvreux, adding that some investors were wondering whether the company could recover soon or if the deep correction would continue.

Renesas, another automotive chip manufacturer, also admitted that the company was a bit too optimistic about its outlook in the first quarter. The company is also taking actions to continue to be stable and cautious.

From the data, Renesas' second quarter operating performance, including sales and profits, both declined. Sales were 358.8 billion yen (down 2.7% from the same period last year), operating income was 110.6 billion yen (down 14.3% from the same period last year), and quarterly net profit was 96.7 billion yen (down 18.7% year-on-year). Compared with the previous quarter (the first quarter), sales increased by 2.0%, but operating income and net profit were lower, and the operating profit margin was 30.8%, which was worse than the same period last year and the previous quarter.

Shares of Renesas Electronics Corp. suffered their biggest drop in 15 years, falling about 14% on Thursday, hurt by a broad decline in technology stocks and investor disappointment over Japanese chipmakers' profits falling short of expectations.

However, if divided by business, Renesas' automotive business sales were 190.4 billion yen, up 18.2% year-on-year and 6.9% month-on-month, while the industrial/infrastructure/IoT (Internet of Things) business was 166.2 billion yen, down 18.9% from the same period last year and 3.1% from the previous quarter.

Regarding the reasons for the weakness in the industrial market, Renesas CEO said, "There is no concern about the market share in the industrial market, and overall demand remains weak. The market and demand itself are weak, so customers use it for longer." Of course, their inventory is another influencing factor. According to Renesas, the company's internal inventory and channel inventory increased in the second quarter. And due to the expansion of the "chip library" for storage processing wafers (mainly microcontrollers using 40nm process), internal inventory is increasing. However, due to inventory adjustments, the company expects sales of industrial chips to decline this quarter, but revenue will rebound in the next quarter.

Renesas CEO said, "The company's second quarter results and third quarter earnings forecast were disappointing. We will firmly rebuild our structure, maintain growth rate, grit our teeth and invest, and we will get back on track. Even if it means reducing our revenue."

AI chips are not the savior either

If we say that the poor stock price performance of the above manufacturers is due to the poor revenue expectations of the companies, but in fact, at this moment, we find that some semiconductor manufacturers that have boarded the AI ​​chip train are also on the edge of danger.

First, let's look at SK Hynix, the HBM leader and Nvidia's closest partner. Data shows that the company's second-quarter sales were better than expected, reaching 16.4 trillion won (US$11.9 billion), and its high-bandwidth memory revenue soared by more than 250%. The company's operating profit in the three months ending June also exceeded expectations, reaching 5.47 trillion won, with an operating profit margin of 33%, thanks to the overall price increase of DRAM and NAND.

The company said it will start mass production of its next-generation 12-layer HBM3E chips this quarter, extending its lead over rivals Samsung Electronics Co. and Micron Technology Inc. in designing and supplying high-end memory for Nvidia Corp.’s artificial intelligence accelerators. The company also said HBM3E products will account for about half of all its HBM chip production this year.

But even with such superior results, SK Hynix's shares fell 8.9% in Seoul on Thursday, the biggest intraday drop since November 2022. Earlier, U.S. technology stocks fell broadly, with Nvidia falling 6.8% as investors became uneasy about the overvalued valuations of artificial intelligence-related companies. Samsung Electronics Co., which is struggling to break into the lucrative high-end memory market, also fell 2.3%.

According to Bloomberg, the problem is due to growing concerns that unless companies such as Microsoft and Alphabet Inc. can generate significant revenue from their huge investments, spending on artificial intelligence and data centers will slow. This week, Morgan Stanley removed artificial intelligence chip industry stocks such as SK Hynix and Taiwan Semiconductor Manufacturing Co. from its watch list, warning that it might be time to take a break.

Another AI-driven semiconductor equipment manufacturer, ASMPT, also sent out grim signals.

ASMPT CEO Huang Zida said that the number of orders for advanced packaging (AP) has surged, especially fromGenerative AI（AIGC) and high performance computing (HPC) drive the revenue of thermal compression bonding (TCB), so we are optimistic about its prospects. However, due to the still low consumer desire, the semiconductor solution division (SEMI) will take more time than expected to recover, and the surface mount technology solution division (SMT) market is weak, and the development of related businesses has been hindered. We hope that the Chinese market can bring more orders and bring profits to the company.

Huang Zida continued to say that due to the weak automotive and industrial market segments, the division's business will face certain resistance, but the current improvement in the welding wire and hybrid welding business reflects SEMI's gradual recovery. He believes that the division's business has now bottomed out and it is expected that SEMI's division revenue will remain flat this quarter.

Because of this, the company's sales revenue in the first half of the year was 6.48 billion yuan, a year-on-year decrease of 17.1%. The revenue of the semiconductor solutions division (SEMI) and the surface mount technology solutions division (SMT) decreased by 5% and 25.5% year-on-year respectively. ASMPT's net profit in the first half of the year was only 315 million yuan, a year-on-year decrease of 49.6%.

Huang Zida estimates that orders for mainstream semiconductor products will remain stable this quarter, but the weak industrial production and automated production markets continue to plague the SMT solutions business. It is estimated that overall revenue this quarter may fall by about 10% year-on-year and more than 6% quarter-on-quarter, and the order volume will also record a single-digit decline quarter-on-quarter.

These poor data caused ASMPT's stock price to plummet by 23%, and its market value evaporated by tens of billions.

Meanwhile, shares of ASML and ASMI both fell about 3% as the broader industry correction hit the business outlook of semiconductor companies, affected by falling demand from major automotive and industrial customers. BE Semiconductor Industries fell 13% after forecasting flat third-quarter sales despite an increase in orders for its artificial intelligence systems, hit by weak growth in mainstream assembly markets, especially in China.

Chip companies including ams OSRAM (down 7 percent ahead of earnings on Friday), Melexis (down 4 percent), Technoprobe, Soitec and Nordic Semiconductor also fell.

Final Thoughts

In recent exchanges with many industry insiders, they are still very pessimistic about the second half of the year for the chip industry. Many people actually share the same view as Renesas CEO, that is, they think that their expectations for the second half of the year or even the second quarter at the beginning of the year were too optimistic.

As many analysts have said, if the entire chip industry is stripped of the growth brought by AI chips, what will the real data be like? As mentioned in the last paragraph above, the growth momentum of AI chips now seems to have reached its end.

What will the future look like? What are your predictions? Please share your thoughts and outlooks on your industry.