Chart of the Day: A Tale of Two Semi’s

Earnings reports from cutting edge technology end user foundry Taiwan Semiconductor Manufacturing Co Ltd (2330.TW), commonly known as TSMC, and industrial end user focused Texas Instruments Inc (TXN.O), told different stories about the outlook for the semiconductor industry.

TSMC decided to raise their 2019 CapEx forecast by $4B (roughly 13.2%) to meet increased demand related to a stronger outlook for 5G, 7-nanometer, and 5-nanometer. Conversely, TXN was more downbeat and impacted by a global slowdown in industrial production and trade tensions.

During TXN’s earnings conference call Rafael R. Lizardi, Texas Instruments Incorporated – Senior VP of Finance & Operations, CFO and CAO, spoke about the weaker outlook, “We have close to 100,000 different customers, and we sell about 100,000 different products. It’s difficult to pinpoint any one thing, but the sense we get, talking to those customers, getting input from them, from our sales people and all the touchpoints that we have, is that the weakness is broad-based. It’s due to macro events and specifically the trade tensions. And if you think about when there’s tensions in trade and obstacles to trade, what do businesses do? They become more cautious, and they pull back. And we are at the very end of a long supply chain, and when the ones at the very front pull back, it becomes a traffic jam. And so, our sense is that is what’s happening in the marketplace. But we’ll see what other companies will report over time and we’ll get a clearer picture over the next several weeks and really quarters, because this thing, we’ve been in it for now four quarters, and it’s going to be longer than that.”

TSMC is a better read on the semiconductor industry as it is the major manufacturer for the industry. However, many use the semiconductor industry as a gauge on the over all health of the economy. Therefore, Texas Instruments is still relevant.