Semiconductor stocks in Asia plummeted on Tuesday as Samsung and Taiwan Semiconductor lost billions of dollars in market cap as the competition between the U.S. and China heats up.
The sector has lost over $240 billion in market value since Oct. 6 as trade restrictions, lower demand and an oversupply in inventory has rattled the chip market, according to Bloomberg's data.
Shares of Taiwan Semiconductor (TSM) the world's biggest contract chipmaker and a lead supplier for Apple Inc. (AAPL) iPhones, dipped by 8.3% while Samsung Electronics Co. and Tokyo Electron Ltd. also fell.
Back in July, Taiwan Semiconductor reported its biggest quarterly profit jump in two years and said it was "highly confident" heading into the remaining half of 2022.
Investors have lost confidence as the Biden administration decided last week to restrict tech exports to China. The administration has limited how much U.S. companies can sell their products and tech to Chinese companies.
If the restrictions from Washington increase, it could hamper the ability of companies to meet their revenue targets.
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Samsung Buy Rating
Goldman Sachs maintains its buy rating on Samsung, stating that while the company's near-term earnings "are likely to remain weak, similar to its memory peers such as Micron, we continue to expect a moderation in DRAM pricing decline and reduction in industry inventory levels from 1H23 as the catalysts for the stock," wrote equity analysts Daiki Takayama and Giuni Lee.
When Samsung reports earnings on Oct. 27, investors should focus on data that discusses "memory production cuts given elevated inventory across the industry and "potential lower adjustment in capital expenditure plans given the rapidly deteriorating demand outlook."
The other key factors to note are the company’s view on the 2023 outlook for memory S/D outlook and guidance on "bit growth" for the fourth quarter along with progress in foundry and capacity expansion plans in the U.S., demand for smartphone and TV demand outlook and strategy for capital allocation strategy, Takayama and Lee wrote.
Samsung is not likely to lower its capital expenditure budget as much as Micron Technology (MU) and SK Hynix since the chip company is building a new U.S. foundry fab and is "more committed in technology such as EUV for DRAM where equipment demand is still outpacing supply, and its historical tendency to not reduce spending meaningfully even during downcycles," wrote Lee and Takayama.
Samsung's 2023 capital expenditures are estimated to fall by 9% year-over-year while the capex for the foundry will be flat as memory capex dips by 14% year-over-year, the report said.
"Therefore, while we think SEC will also try to limit bit production for next year by reducing capex, the decline would likely be smaller compared to what we expect for MU or Hynix," wrote Lee and Takayama.
The new U.S. restrictions are a “big setback to China” and “bad news” for global semiconductors, Nomura Holdings Inc. analyst David Wong wrote in a note on Monday.
Efforts by China could also be “at risk as it may not be able to use advanced foundries in Taiwan and Korea,” he wrote.
The move by the White House could have economic ramifications and possibly spur retaliation. Morgan Stanley said the restrictions impacting supercomputers and multinational capital investment in the country could turn out to be “disruptive.”
China would face challenges in manufacturing its own semicondcutors since the equipment is "dominated by US and its allies,” such as Japan and Netherlands, Chae Minsook, an analyst at Korea Investment & Securities, wrote in a report. “It is impossible to maintain the chip industry without adopting advanced equipments.”
U.S. Chipmakers Plummet
Nvidia (NVDA) lead chip stocks lower Tuesday following several analyst downgrades and the sector repricing due to the White House restrictions.
The third day of declines for U.S. chip stocks impacted chipmakers across the board, including Advanced Micro Devices (AMD), Qualcomm (QCOM) and Texas Instruments (TXN).
Advanced Micro Devices also gave a warning on slower near-term revenue growth due to falling PC and smartphone demand.
Biden's decision to limit the sale of equipment to China-based firms used in the making of advanced semiconductors pushed down valuations even further.
