???TSMC beats forecasts, expects semiconductors to bottom in 2Q [?? Semiconductor Companies… Fabless and Foundries]

• US large-cap S&P 500 closed 0.34% UP ▲?
• Tech-heavy Nasdaq Composite closed 0.64% UP ▲?
• Pan European STOXX Europe 600 closed 0.73% UP ▲?
• HK's Hang Seng Index closed 0.36% UP ▲?
• Japan's Nikkei 225 closed 0.01% UP ▲?

?? IN THE MARKETS

• Shock news: Inflation EXACTLY what everyone was expecting
• BYD challenging Tesla in luxury EVs - globally

?? FOCUS

• TSMC beats forecasts, expects semiconductors to bottom in 2Q

?? MoneyFitt EXPLAINS

• ?? Semiconductor Companies… Fabless and Foundries

?? IN THE MARKETS

Shock news: Inflation EXACTLY what everyone was expecting

So December's "headline" US CPI inflation came in at 6.5% year-on-year (i.e. compared with the same period last year), which was exactly inline with what Wall Street's best were expecting, and the lowest print in more than a year. Prices were actually DOWN by 0.1% month-on-month, for the first time in 2-1/2 years.?

The more interesting "Core CPI", which strips out the volatile direct food and energy components, also came in bang inline with estimates at 5.7% y-o-y or 0.3% m-o-m. (It was slightly higher than the 5.6% core inflation that fund management' traders, the ones who actually invest the money, were expecting, according to 22V Research in the FT. 65% of them were expecting 5.6% or lower.)

On Tuesday the market was "pricing in" a 79% chance of a benign 0.25% increase at the 1st February FOMC meeting, as implied by interest rate futures on the CME FedWatch Tool. Despite coming in EXACTLY inline with expectations, that 0.25% hike has now shot up to a 94% probability.

In late 2021, prices of consumer durable goods (like appliances, consumer electronics, furniture and Peloton bikes) were driven through the roof by cashed-up, homebound Americans and exacerbated by supply-chain constraints. That demand surge was the driver of the "transitory inflation" wave that totally bamboozled The Fed and is basically now over (FedEx reducing Sunday deliveries?) The Russia vs. Ukraine-led commodity price wave from early 2022 is fading fast, too, hence the negative headline CPI, which now leaves the companies-taking-advantage-of-the-situation (i.e. profit-led) wave yet to crack.

Meanwhile, the labour market remains red-hot. The number of newly jobless fell, as did the total number remaining unemployed. The risk is that tight labour markets may push up labour costs which then push prices higher in a self-reinforcing cycle.

The consistent message from Fed officials this week and since last December is that interest rates will likely peak ABOVE 5.0% and stay there all year to make sure inflation (especially in the huge and stickier services sector) is well and truly dead. BUT right now, the markets are pricing in a LESS THAN 2% chance that interest rates will be 5.0% or higher at the December Fed meeting.

Most of the top market strategists in the? brand new, hot-off-the-press "MoneyFitt Morning What's Priced-In for 2023" investor guide are predicting that interest rates flatten out this year, with only a couple expecting rates to be lower at year end.

BYD challenging Tesla in luxury EVs - globally

BYD stands for “Build Your Dreams” and the dream is to "reshape the contours of the global luxury car market.”?

Chinese carmaker BYD is pushing into the premium segment two new luxury electric-vehicle (EV) models this year, a sports utility vehicle with a waterproof sealed body and 0-100kph in three seconds (Yangwang U8) and a sports car with Lambo-style scissor doors (Yangwang U9), both priced at about RMB1 million (US$145k).?

Though recently trimming, Warren Buffett's Berkshire Hathaway has a stake in the company with 14% of its H-shares. The company became the world’s top EV maker in 2022 after selling a record total of 1.86 million units, a growth of 155% y-o-y. Meanwhile, luxury rival Tesla sold 29% fewer units than BYD globally, while facing major roadblocks in the Chinese market. December sales were 21% lower than a year earlier.?

Tesla is trying to respond by slashing prices in China, with last week's 10-13% cut the second in three months. Despite understandable protests and demands for compensation (rejected) from disgruntled brand-new Tesla owners, waiting lists have lengthened.

Elsewhere, Tesla is close to setting up a factory in Indonesia producing up to 1 million EVs a year and also benefiting from the country’s reserves of key battery metals. And over in India, BYD is rolling out more models, including a premium EV saloon and aiming to be India’s second-largest EV company in 2023, behind homegrown Tata Motors.

?? FOCUS

TSMC beats forecasts, expects semiconductors to bottom in 2Q

Taiwan Semiconductor Manufacturing Co., the world's most valuable semiconductor company, logged a 78% rise in fourth-quarter profits, just beating forecasts despite a slight miss in sales. The bottom line was driven by strong sales of its advanced chips and helped along by a favourable exchange rate and cost-cutting.?

Circuit widths on chips are measured in nanometers, which are one-billionth of a metre, and TSMC defines 7-nanometer and smaller nodes as advanced technologies. Shipments of 5- and 7-nanometer chips accounted for 32% and 22% of TSMC's total wafer revenues.?

• "We forecast the semiconductor cycle to bottom sometime in first half and see a recovery in second half 2023" - TSMC CEO C.C. Wei

The broader industry has seen a deep downturn that battered cheaper commodity chips. Going forward, TSMC warned that demand has softened for chips for data centres, smartphones and consumer electronics and that its revenues in the next quarter could drop 5% and hinted that the second quarter could mark the bottom before a recovery in the second half.?

Capital expenditure in 2023 would be cut to US$32-36 billion from US$36.3 billion in 2022. TSMC is considering a second plant in Japan and is evaluating a first in Europe in response to customer demands for a more geographically diverse supply chain.

TSMC produces chips for fabless semiconductor firms such as AMD (AMD), Apple (AAPL), Nvidia (NVDA), Qualcomm (QCOM) and others, and is not only the world's largest contract chipmaker, or foundry, but also the largest semiconductor ?? company of any sort based on market capitalisation (share price X number of shares.) After a 6% rally overnight, it is 9% bigger than graphics chip king Nvidia and 38% bigger than (mainly memory) tech conglomerate Samsung. It's the 11th most valuable listed company in the world.

MoneyFitt EXPLAINS

?? Semiconductor Companies… Fabless and Foundries

• Semiconductors are the basic building blocks of an ever-widening range of electronic products, far beyond just computers and electronic items. The word's often used interchangeably with "microchips" or just "chips."
• Semiconductor companies generally focus on one of two major product groups
• 1) memory chips (DRAM etc, not storage - e.g. Samsung, Micron) and?
• 2) logic microprocessors (CPUs and GPUs - e.g. Intel, Nvidia)?
• though there are many others. (Semiconductor equipment makers are quite separate - e.g. ASML, AMAT, Tokyo Electron.)
• But there is another distinction: Whether or not they have their own factory (fabrication plant, or "fab") or not ("fabless", where they just do the design, such as Qualcomm, Broadcom, Nvidia... and Apple.)
• A fabless semiconductor design house needs its chips built by a contract manufacturer or "foundry" which invests enormous sums in its plant, equipment and, more importantly, people and processes. TSMC is by far the largest, most advanced and most profitable foundry in the world.