Could Texas Instruments be the canary in the chip mine?
The semiconductor supercycle has become a widely accepted narrative, with analysts anticipating that pandemic-driven supply disruption will continue to collide with ongoing geopolitical tensions between the US and China and drive demand for chips through the roof.
Yet Texas Instrument’s second quarter results bucked the supercycle narrative. The firm’s forecasts for the third quarter were lower than expected; implying slowing revenue growth and leading some to question whether or not we have already reached the top of the cycle.
However, while Texas Instruments is often thought to be a reliable bellwether for the general health of the industry, it may not be the proverbial canary in the chip mine in this instance.
The slowdown seen in Texas instruments quarterly results is likely to reflect not the
start of another cyclical downturn and the end of the supercycle, but rather a number of related factors. These include capacity limitations and supply constraints causing shortages of raw materials for production.
For the foreseeable future therefore, it is likely that rising demand and ongoing shortages will continue fueling a semiconductor supercycle. When the eventual top does roll around, we are likely to see certain telltale signs: Fear-driven inventory stockpiling could come to an end, and capacity may significantly increase as chipmakers ramp up production. At the same time, we could see falling demand in end markets as suppliers pass on cost increases from rising inflation to consumers.
Until then, it is likely that a slowdown in earnings – even from industry bellwether Texas Instruments – is not indicative of a change in the broader semiconductor market trend.
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MARCUS ALLCHURCH | Partner
Acuity Advisors
