Shares of semiconductor stocks fell hard today before recovering somewhat in late-day trading. Leading chipmaking firms Taiwan Semiconductor Manufacturing (TSM -3.00%), Qualcomm (QCOM -2.25%), and Skyworks Solutions (SWKS -1.76%) were down as much as 4.3%, 2.9%, and 2.9% before recovering to a 2.9%, 0.9%, and 1.4% decline, respectively, as of the end of trading.
There was actually some mildly encouraging news today for semiconductors, specifically out of Taiwanese publication Digitimes around recent order trends for TSMC. Nevertheless, it appears as though economic jitters are overwhelming sector-specific news, as the Credit Suisse (CS -3.20%) drama has spurred increased fear over the global economy.
Today, Credit Suisse plunged after the company released its annual report last night, which disclosed material weaknesses in its financial reporting. Meanwhile, the bank's largest shareholder said today it wouldn't step in with more capital to stem the tide, causing a panicked sell-off and fears over potential bankruptcy. While it appears the Swiss government is working on a backstop solution, investors are obviously worried about the bank's contagion to the broader economy and thus a potential global recession.
Semiconductor stocks are typically known as some of the most economically sensitive stocks, so they fell in sympathy. But have the fears gone too far?
After all, the semiconductor sector could likely be said to already be in the midst of a deep recession that started all the way in the middle of last year. PC shipments recorded their largest annual declines in history toward the end of last year. Meanwhile, smartphone sales also logged an 18% year-over-year decline in the fourth quarter of 2022 for good measure.
So, while the global economy has thus far been resilient to the Federal Reserve's rate hikes until now, consumer electronics have already been in their own recession for about a year now. Meanwhile, all the new PCs, smartphones, and other consumer electronics that were purchased in the pandemic may have to be refreshed soon.
Maybe that's why these cyclical stocks aren't doing that badly today after all. It could mean current numbers won't get materially worse, and chips could lead the economy out of the current downturn, just as they led it in.
KeyBanc analyst John Vinh even wrote a positive note on Skyworks late last week, saying that excess smartphone inventory is beginning to be wound down, especially as China has reopened. Moreover, Skyworks should benefit from increased content in the upcoming iPhone later this year.
And today, Digitimes reported that utilization rates at TSMC's logic fabs may have bottomed out. According to sources from semiconductor equipment companies, TSMC's utilization rates should begin to recover sequentially in April from their current low numbers. That suggests a potential bottom in chip demand, and that things may improve for semiconductor company results going forward after April.
It's very difficult to time the semiconductor cycle, especially when new banking crises are popping up left and right these days. However, it should be noted that the material drop-off in consumer electronics sales began around this time last year. Typically, semiconductor downturns last between four and six quarters, so we could be on the tail end of this one.
While there is always the chance we have a double-dip downturn in semiconductor sales if the global economy experiences a severe shock like the Great Recession, investors with time horizons beyond the next few months should probably hold strong. The post-pandemic bust in consumer electronics spending may be nearing its end, even if other stresses in the economy are just beginning.