The recent earnings reports of several major companies have been somewhat disappointing, quite different from last quarter. Still worth studying.

Shenwan Hongyuan - Overseas Tech Industry Weekly Report

TSMC: AI visibility extended, semiconductor performance outlook revised downward. TSMC released its 2024Q1 results, slightly exceeding expectations overall, with the strong demand for AI contrasting sharply with the sluggishness in other semiconductor sectors. The company raised its AI outlook, expecting AI server processor revenue to double this year, accounting for 10%-15% of total revenue, and projected a 50% CAGR over the next five years. It lowered its semiconductor industry outlook, revising 2024 growth (excluding memory) from 10%+ to 10%; wafer foundry industry growth was adjusted from 20% to mid-to-high single digits. Additionally, attention should be paid to changes in overseas semiconductor market conditions.

ASML: Q1 new orders fell short of expectations, with nearly half of revenue coming from mainland China.

1) Current performance met expectations: The company reported 1Q24 revenue of €5.29 billion, down 21.6% YoY and 26.9% QoQ, within the guidance range of €5.0–5.5 billion; 1Q24 gross margin was 51.0%, exceeding the guidance of 48–49%.

2) Sales in mainland China rose by 10 percentage points to 49%, surpassing the 3Q23 peak. Additionally, ASML's CEO denied halting after-sales services in China, indicating the growing importance of the mainland China market for ASML.

3) Orders below expectations: 24Q1 new orders totaled €3.6 billion, significantly below expectations, with EUV orders declining sharply and memory accounting for over half of orders for the first time in recent years.

4) Outlook: 2Q24 revenue guidance is €5.7–6.2 billion, with full-year 2024 revenue expected to be flat YoY (2023 revenue: €27.56 billion). Gross margin guidance is slightly lower than 2023 (2023 gross margin: 51.3%).

Netflix: Performance was decent, but the drop stemmed from the discontinuation of key metrics, raising concerns about its growth prospects.

1) Netflix fell 9.09% in a single day after earnings, mainly due to its decision to stop disclosing key metrics like paid memberships and average revenue per member starting in 2025. From a membership perspective, Netflix saw renewed growth in 23H2 due to its crackdown on password sharing, leading to upward revisions in paid membership expectations. However, the market interpreted the discontinuation of key metrics as a sign that membership growth may be plateauing, triggering a sharp stock decline.

2) Earnings: 24Q1 results were slightly better than expected, with revenue up 14.8% to $9.37 billion and membership growing by over 9 million in the quarter. The company’s Q2 and full-year guidance was muted, with Q2 revenue expected to rise slightly QoQ while profits decline. For the full year, the operating margin target was raised from 24% to 25%, with revenue growth guidance of 13%-15%.

3) Content investment remains high, with the company planning $17 billion in content investment for 2024, up sharply from $13 billion in 2023.

This week saw a sharp correction in U.S. stock indices, with semiconductor stocks leading the decline amid concerns over downstream demand and inflation fluctuations. With inflation resurging, expectations for Fed rate cuts were pushed back. The Philadelphia Semiconductor Index, which had risen over 60% since November 2023, was due for a correction. TSMC’s downward revision of semiconductor growth on Thursday, coupled with weak non-AI sector performance, and SMCI’s announcement of delayed earnings on Friday amplified concerns about AI-related semiconductor companies’ performance, dampening expectations for rising AI hardware demand. The Philadelphia Semiconductor Index fell 9.23% this week, reducing its YTD gain to 3.15%. SMCI dropped 20.6%, while NVIDIA, AMD, Broadcom, TSMC, ASML, and Micron all fell over 10% for the week. Additionally, Tesla announced layoffs amid slowing product demand, falling 14% for the week.

Risk warnings: Risks from macroeconomic uncertainty; slower-than-expected AI development; companies failing to adapt to the AI era and losing competitive edge.