By Mauro Orru
European groups operating in the semiconductor industry showed diverging trends in the first three months of the year, with some posting better-than-expected results and others downgrading guidance amid weak demand for chips from car makers, consumer-devices and industrial-machinery manufacturers. Analysts expect a mixed second-quarter earnings season marked by improving chip sales to makers of smartphones and laptops, though demand from carmakers and industrial-machinery makers remains weak. Here is what you need to know:
WHAT TO WATCH:
--DEMAND: Infineon Technologies and STMicroelectronics are the European chip makers most exposed to the automotive and industrial sectors. Chip makers have been grappling for months with lackluster demand for their semiconductors in consumer devices, electric vehicles and industrial machinery as manufacturers held off ordering more chips that they had stockpiled in recent years.
Earlier this month, Elon Musk's electric-vehicle maker Tesla reported a 4.8% year-on-year decline in vehicle sales for a second straight quarter, a sign that the EV market is still away from a full recovery.
"The auto and industrial inventory corrections seem to be dragging on for longer than previously expected, with visibility still low," Jefferies's Olivia Honychurch wrote in a note to clients. She expects Infineon and STMicroelectronics to post in-line to slightly weak results for the quarter. Barclays Capital analysts said in a separate note that STMicroelectronics should see weaker trends than Infineon given its higher exposure to industrial customers.
However, sales of electronic devices that embed artificial intelligence, such as Apple's upcoming iPhone 16 lineup, should benefit STMicroelectronics as well as Ams-Osram in the second half of the year, Honychurch said, since the companies provide equipment to the iPhone maker.
--GUIDANCE: Both Infineon and STMicroelectronics have already cut their annual guidance, citing weak demand from the automotive and industrial sectors. Honychurch expects Infineon to reiterate its targets for the fiscal year ending Sept. 30, with some improvements in servers and smartphones offsetting weakness from automotive and industrial customers. However, she expects STMicroelectronics to point toward the lower half of its $14 billion to $15 billion sales guidance range.
In the Netherlands, ASML might upgrade its annual guidance as orders have the potential to grow in the coming quarters, UBS analysts wrote in a research note. The Dutch company, which provides semiconductor-making machinery to chip makers, counts Taiwan Semiconductor Manufacturing Co. among its customers.
ASML's order intake for the second quarter probably won't include extreme ultraviolet lithography systems from TSMC, but the Dutch company is expected to book those orders in the coming quarters, UBS analysts said. They expect TSMC to raise its capital expenditure target this year, a move that could translate into further orders for ASML and help it lift its own sales guidance.
ASM International, another Dutch maker of equipment, mostly for the deposition of thin films that chip makers need to produce semiconductors, is expected to maintain its guidance for second-half revenue growth of at least 10% compared with the first half, Honychurch said. She anticipates orders from TSMC and Intel will help the group beat market expectations.
WHEN COMPANIES ARE SCHEDULED TO REPORT:
-- ASML: July 17
-- ASM International: July 23
-- STMicroelectronics: July 25
-- BE Semiconductor Industries: July 25
-- Siltronic: July 25
-- Ams-Osram: July 26
-- Infineon: August 5
Write to Mauro Orru at mauro.orru@wsj.com
(END) Dow Jones Newswires
July 08, 2024 09:42 ET (13:42 GMT)
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