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The latest raft of technology earnings is starting to show a clear divide between areas that may continue to grow and those that will most certainly suffer at the hands of a global economic slowdown. Whether the more resilient sectors succumb, or conversely, drive a rebound in the parts that slumped, will be a key issue to watch over coming months.
Most major technology hardware names have already reported June quarter numbers and provided their assessment for the second half of this year. These include Apple Inc, Taiwan Semiconductor Manufacturing Co, Samsung Electronics Co and Intel Corp.
Generally speaking, it can be concluded that consumer spending and outlays on discretionary items — those that are short-term or non-essential — is declining sharply. Yet corporate demand is robust, especially for infrastructure and equipment such as data centres, communications networks and industrial applications.
Escalating inflation is a major driver of uncertainty. US consumer prices climbed 9.1% in June, the highest level in more than 40 years, and central banks across the globe are raising interest rates to tackle the problem. This higher cost of money is hurting the economy, pushing the US into two consecutive quarters of declining GDP (a so-called technical recession). Meanwhile, China — the world’s second-largest economy — is grappling with Covid-19 lockdowns and a worsening property crisis.
TSMC was one of the first to hand in its financial report card and predict the future. If one was to look only at this company, and not too deeply, you’d think all was fine in the world.
Earnings beat estimates and its outlook far exceeded what analysts had expected. But amid the fine print and pie charts, was some clarity about what’s hot and what’s not.
Sales from chips used in smartphones climbed a mere 3% from the prior quarter, no longer accounting for the largest slice of revenue. High-performance computing on the other hand, which comprises processors used in artificial intelligence, data centres and 5G mobile networks, expanded 13%. Revenue in this division grew around 50% from a year prior, according to Bloomberg Opinion calculations.
Numbers from Intel and Samsung tell a similar story.
As the world’s biggest maker of computer and server central-processing units (CPUs), Intel is uniquely reliant on a small slice of the tech industry.
It doesn’t look pretty. Revenue at its client computing group, which sells chips used in desktop and laptop PCs, dropped 25% from a year prior, with operating margin in that division shrinking by 65%. Its data centre division was down 16%, partly because customers who make data-center servers are trying to cut inventory, and a larger proportion of what it did sell was lower-priced chips.
—Bloomberg