NFTRH; The Latest Word on the Semi Equipment Cycle (high priority)

When we were originally alerted to the coming slowdown in Semi Equipment, my industry contact had been working to a Q4 2018 to Q1 2019 game plan for cyclical recovery. Now it seems this may have been pushed out by a quarter, at least. His words exactly…

Hi Gary,

We see business off about 25-30% from the high over the past year. I suspect it will stay at this level and as of right now it looks like it will not recover until Q1 and maybe not until Q2 next year. 2019 is still expected to be just as robust as it was and depending on the world economy may even be up 5-10%.

That’s the best guess I have right now.

Have a great day!

My contact uses industry sources like SEMI as well as communication directly with his customers, including Equipment companies Brooks/PRI (BRKS) and MKS (MKSI).

One thing is for sure, his Semi Equipment customers are not yet alerting him about a new ramp up cycle. As we’ve discussed in the past, Semiconductor cycles are volatile and the best laid plans can be blown up in an instant. There was an over build in chips and now there is a slack in the rope.

The industry will extrapolate cycles under normal circumstances, but we as market participants know full well that normal can become abnormal at any time. And from my experience in manufacturing watching this sector from afar (we served the more consistent Healthcare industry) normal can go abnormal at any time.

For reference, here is the latest puff piece (from SEMI) touting the components of the “rebirth of the Semiconductor industry”. FWIW, I buy it. For every technological innovation in the connected world, there is likely demand for Semiconductors. But we are talking cycles here, not puff pieces.

There is of course also the Trade Tariffs issue, and it is starting to bite.

China Trade Brings Semiconductor Executives to DC for the Fall Washington Forum

We have covered this before, but it’s worth a review…

However, by pursuing policies that limit market access opportunities, company-led R&D and innovation will slow, which, in turn, will curb further export potential.

SEMI companies also stressed that because of the blunt application of these tariffs, this action will actually hurt U.S. companies as much as it hurts their Chinese competitors. Indeed, about 40 percent of imports in our sector from China are from U.S. or other non-Chinese companies. Further, the semiconductor industry relies on a vast network of supply chains, which have been built and qualified over the course of years. A fundamental revamp of supply chains is simply not feasible. This would be expensive, time-consuming, and resource-intensive.

Meanwhile, we have what I consider the two premier Equipment companies, AMAT & LRCX breaking down again from short-term bear flags on the daily charts.

And losing key support. AMAT broke down a few weeks ago and targets around 30. LRCX broke down more recently and targets 90. Now, targets are not set in stone. They don’t need to be hit and they also are not stop signs if they are hit. These charts are bearish with no sign of a short-term recovery.

Bottom Line

Semi is a very key technology at the heart of a growing base of technology industries.

The Equipment companies are in deceleration mode until further notice. As yet there is no sign of a recovery.

For new subscribers, we used the likes of AMAT & LRCX to lead a bullish view on the economy in 2013 and a still-bullish view in 2016, as Equipment order bookings accelerated all along the way to a recovered economy. The Q1 2013 signal was early and we should at the very least continue to ask the question of whether today’s negative signal has the potential to morph into something more negative for the broader economic cycle, early though it may be.