In the intricate world of semiconductor manufacturing, the dynamics and movements of different players reveal a complex scenario influenced significantly by the ongoing AI revolution and other market pressuresWhile a few companies are benefiting remarkably from the surge in AI technologies, others face a challenging landscape, particularly in the industrial and automotive sectorsThis disparity in fortunes has even led to the reshuffling of top executivesFor instance, Microchip Technology has recently brought back former CEO Steve Sanghi to replace the long-serving but underperforming Ganesh Moorthy, a decision indicative of the strategic shifts companies are undergoing in response to market realitiesLikewise, Wolfspeed's Greg Lowe has exited, particularly due to disappointing results in the electric vehicle market, potentially marking a ceasefire in the aggressive borrowing spree the company has been on.

Organizations such as the World Semiconductor Trade Statistics (WSTS) and the Semiconductor Industry Association (SIA) are offering assurances that the industry is on a recovery path, while many CEOs remain comfortably seated in their corner offices, hoping that boards refrain from prying too deeply into sales statistics that deviate from the overall market picture

These statistics tend to mirror the excitement surrounding AI rather than the broader semiconductor marketplace performance.

Recent surveys into the hybrid manufacturing market suggest a viable recovery may still be a quarter awaySemiconductor firms have lowered their revenue guidance for Q4 2024, reflecting a decline of over 5% quarter-on-quarter and exceeding 15% year-on-yearWhile inventory conditions appear to be improving, distribution inventories have reached a low point and are starting to rebound.

For many, the actual condition of the market might not be a pressing concern, knowing the cycle will eventually improveHowever, for those embedded in the semiconductor supply chain, timing is crucial

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The moment a market reversal becomes evident, competitors will scramble to seize every possible growth resource, from wafer fab capacity and raw materials to skilled labor.

This 'gold rush' can leave many out in the cold as these resources get commandeered by more agile playersIt raises the stakes for companies that might need to switch allegiances and seek employment opportunities elsewhere, as job security becomes tenuousYet, moving too quickly can be equally detrimental—betting on a market resurgence prematurely can result in losses, given the capital-intensive and high-stakes nature of the semiconductor business.

Despite TSMC's dominant position in the foundry market, it embodies a critical lens through which one can examine the semiconductor landscape

However, the narrative extends beyond TSMC alone; several other players are also noteworthy.

Overall, the current quarter has proven to be relatively strong for foundry businesses when assessed from a revenue perspective.

TSMC has significantly driven an impressive growth rate of 10.6% quarter-on-quarter and a substantial 24.6% year-on-yearSmaller foundries have also reported growth, although Intel's external foundry revenues are excluded from this analysis, as it does not contribute similarly to TSMC.

Beyond TSMC, various global foundries and Tower Semiconductor have noted that they are benefiting from the ongoing AI frenzy.

Focal attention is also directed toward the non-AI semiconductor markets, particularly in the PC and smartphone sectors, which TSMC and others observe to be gradually recovering

They attribute this trend to a generally subdued macroeconomic environment.

The foundries find themselves navigating through a slow recovery across most market segments, balancing unpredictability while contending with increasing demands from customers for expedited deliveryMany foundries have reported an uptick in design wins across most markets.

Gross margins and operating profit margins indicate that apart from TSMC, many foundries have yet to return to their full vigorEven though TSMC operates below capacity levels of other foundries, its profitability has surpassed that of prior cycles, with TSMC capturing 90% of the operating profits among the top 14 foundries.

Foundries are working to optimize pricing outside of long-term agreements, citing inflationary pressures and rising costs, while directing clients towards more beneficial technologies.

Currently, TSMC dominates with 90% of the operating profit within the foundry space.

Beyond pricing strategies, foundries are eager to increase operational efficiencies and rigorously manage costs to alleviate inflation pressures

Being in a more advantageous position, TSMC is particularly active in collaborating with clients to ensure a fair value exchange—essentially a form of selective price increases.

After a steady period, inventory levels have seen a slight rise, suggesting that the supply chain is reaching a state of equilibrium.

Samsung has consistently struggled with high inventory issues, experiencing another decline in Q3 2024.

United Microelectronics Corp (UMC) asserts that industry-wide inventory levels are steadily improving, particularly in the computing, consumer, and communications markets

However, customers employ a conservative approach when restocking, often favoring urgent orders over long-term planningDemand in the automotive and industrial sectors remains sluggish, and while companies note improvements in overall inventory levels, the pace of replenishment stays cautious.

In Q3 2024, capital expenditures (CAPEX) continued to declineDespite rising revenues, foundries are not yet ready to embark on massive spending sprees to initiate upward cyclesThe stalling of fixed assets, plant, and equipment (PPE) shows that current CAPEX levels are merely sufficient to maintain the existing value of manufacturing assets, a situation that has persisted for six consecutive quarters.

While fixed assets, plants, and equipment serve as accurate metrics for gauge foundry capacity, a lag exists between investing and realizing the benefits of those investments

Deeper analysis in the future will uncover more intricate details regarding actual capacity and load levels.

As we turn our gaze toward the next quarter's outlook.

Our analysis indicates that even though Samsung's large-scale integrated circuit (LSI) segment comprises 13% of its non-memory business, we still categorize all non-memory revenue under foundry operationsFor companies that have not issued guidance, we apply an average industry growth rate of 2% for estimation.

Employing this methodology yields revenue guidance for the upcoming quarter (Q4 2024):

Predictably, revenue guidance is largely driven by TSMC, which skews both annual and quarterly figures upward

SMIC has disclosed a slight 2% revenue guidance for Q4, with its annual growth rate closely trailing TSMC's.

This reflects the diverse driving forces within the marketTSMC is propelled by the AI boom, while SMIC capitalizes on domestic operations in China, with other players experiencing varied but mostly limited growth corresponding mainly to automotive and industrial markets.

While experts often maintain a detached skepticism toward market fluctuations, this must be differentiated from concrete validations found within analysis practicesRegardless, it is essential to continue advancing analytical efforts, given that fresh insights are invariably waiting to be discovered.