Semiconductor Industry – Cyclical Forever?

Looking at TSMC, MU, LRCX, AMAT, and other semiconductor fab or equipment suppliers.

The semiconductor business is notorious for its "Boom-Bust" cycles. For a couple of years the industry will be highly profitable, then for the next couple of years profits will elude the entire industry.

Why is that?

I've heard it's a cycle of overinvestment -> oversupply -> price crash -> under investment -> demand rises

As a result, semiconductor fabs and equipment suppliers can grow 30-40% for two years, while analysts predict 5-10% growth the following year. This is true today for companies like TSMC, MU, LRCX, AMAT, and many more, and they're valued as if growth is about to halt. That seems insane to me, being able to predict the top of a recurring cycle driven by the poor predictions of demand and supply by the firms themselves? Other industries don't work like this. If a company is posting 40% growth YoY, estimated growth the following year is often 15-25%, not 5%.

If the cycle is caused by the suppliers themselves, it seems solvable to me. Most other sectors can predict supply and demand to a greater degree of accuracy as to avoid cyclicality, so unless semiconductor demand itself is unique and unpredictable, something I haven't seen any evidence of, they should be able to "break the cycle" at some point and forecast better.

My question is: will they break the cycle? is 5% a reasonable forecast for a company which grew YoY by 40%?

Submitted July 11, 2017 at 08:18AM by talyen42
via http://ift.tt/2sM4L3y

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s