Semiconductors: Time to talk cycle again, part IV: Downgrading Semicap to Neutral; positive TSMC

The last 18 months have been hectic in the semiconductor space, with a combination of strong secular and cyclical shifts. We have focused a lot of our research in the first half of the year on secular topics, and we felt it was time in the second half to look at the cycle again. A core element of our semiconductor initiation, 3 years ago, was that supply concentration combined with end-market diversification would reduce the magnitude of cycles. This played out fairly well so far, but we also defended that cyclicality would not go away.

Today, we see evident signs that cyclical moving parts are at play: supply constraints driving double ordering and inventory hoarding, revenue growth rates largely exceeding the most optimistic secular trends one could anticipate, record-high equipment spending, raising prices, etc. The least we can say is that the picture is complex, and there is no easy cycle call to be made. As always, the devil is in the details, and we need to review the situation segment by segment. We published our thoughts on the PC, Datacenter, and Smartphones in earlier installments of this series and today publish our view on the Semicap Equipment industry. We will publish on Autos later this week.