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