There are clear signs that the tech cycle has bottomed. Last week, TSMC beat Q3 earnings expectations – in part due to 7nm chip production – and delivered significantly higher-than-expected capex plans for 2019. Guidance for capital expenditures this year was raised to $14-15bn, well above levels projected in July ($10-11bn).
TSMC is ramping up production capacity on the back of expected strength of demand driven by high-end smartphones, initial 5G deployment and high-performance computing applications.
Companies benefitting from this foreseen turnaround in demand include Japan’s Tokyo Electron, which has seen its share price surge 73.8% year-to-date. Tokyo Electron supplies chip-making equipment, as does Dutch ASML holdings (+66.2% year-to-date). For the record, the best-performing sector in the TOPIX this year has been electric appliances & precision instruments (+23.1% year-to-date).
The President of Murata Manufacturing was bullish on the electronics components market, which he believes is bottoming out. Murata – a major supplier of electronics components for smartphones and automobiles – is a bellwhether for the sector, which may be turning on China’s accelerated investment in 5G mobile communications infrastructure.
This raises interesting questions, namely, how long can a downturn in technology last when the pace of innovation is so fast, and China is determined to push hard on 5G?
