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After TSMC's strong financial report, why is the semiconductor equipment market still depressed?
Time:2019-10-21 Views:1

This week, semiconductor equipment suppliers Teradyne Inc and Lam Research will announce their quarterly earnings.  At the same time, their earnings will also affect the share prices of their peers AMAT, KLA and ASML.  This is because the income of equipment suppliers comes from the transportation of semiconductor capital.

TSM, the world's largest chip foundry, increased its capital expenditure from US$ 11 billion to about US$ 14 billion.  The foundry will use the money to expand its production capacity.  In addition, the company plans to meet the growing demand for its 7nm (nanometer) process nodes.  Increased spending by foundry will increase equipment orders and boost the income of the above equipment suppliers.


However, the semiconductor equipment market is still in the doldrums because memory chip manufacturers have cut capital expenditures to solve the problem of oversupply.  Meguiar's Technology (MU) cut its capital expenditure in fiscal year 2020 to $7.5 billion from $9.1 billion in fiscal year 2019.  As a result, equipment suppliers reported a decline in revenue.  But the rate of decline may slow down.  This is because the increase in casting orders can offset the decrease in memory orders.


Can Semiconductor Teradyne's Share Price Rise after the Third Quarter Results Announce?


Teradyne provides automated testing equipment to help semiconductor and smart device companies bring products to market faster.  Teradyne performed strongly in the first half of the year, especially in the second quarter, as most chip and equipment companies launched products in the third quarter.


The company's revenue in the second quarter of 2019 was US$ 564.2 million, 5% higher than analysts' estimate of US$ 536.7 million.  Teradyne's share price rose 20% after the second-quarter earnings were announced on July 24.  At the same time, it is also one of the best performing semiconductor stocks in 2018.  The annual growth rate of the unit so far this year is 85.7%.


The third quarter earnings report may not show double digits.


Teradyne will announce its third-quarter results on October 23.  It led to a 0.7% drop in revenue to US$ 560 million in mid-point order.  Analysts are bullish on Teradyne.  In addition, analysts expect the company to announce revenue of 565 million US dollars.  Their optimism comes at a time when chip companies are investing heavily in network and memory testing as 5G (the fifth generation) and artificial intelligence (AI) are introduced.  In turn, this has pushed forward the demand for advanced products.  Looking at the performance of the entire industry, Teradyne may meet analysts' expectations.


After the results are announced on October 24, the semiconductor company's share price is unlikely to rise by double digits.  This is because we do not expect any decline in revenue.  In addition, the stock is now above its 50-day moving average of $58.93.  This is 25.6 times its earnings per share over the past 12 months.  The stock is valued at 21.2 times higher than the industry average.  In addition, this indicates that investors have included strong earnings per share in the stock price.  Therefore, double-digit stock price growth is impossible.


Will Lam Research's revenue decline by the first quarter of 2020?