(Bloomberg) — The clouds appear to be lifting for the global chip industry after a year riven by weak demand and geopolitical pressures, promising relief for ASML Holding NV and STMicroelectronics NV, reporting next week.
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While a meaningful recovery may still be some way off, a bullish outlook from Taiwan Semiconductor Manufacturing Co. on Thursday could be a sign the worst of the downturn has passed.
The growing use of artificial intelligence is boosting demand and more chip-making foundries are set to open over the next two years, according to Kepler Cheuvreux analyst Ruben Devos. Global chip sales rose for the first time in more than a year in November.
An update from SAP SE, a bellwether for the global software industry, will be screened for clues on corporate spending trends, while reports from Ericsson AB and Nokia Oyj will reflect both sides of the 5G divide as some telecommunications operators pull the budget strings on network investment.
All eyes will be on LVMH SE’s sales update for signs of a wider luxury slowdown, while Swedbank AB opens the reporting season for Nordic banks mid-week. On the food and beverages front, Associated British Foods Plc and Remy Cointreau Cointreau SA are due, as are Swiss electronic devices supplier Logitech International SA and pharmaceutical ingredients manufacturer Lonza Group AG.
Highlights to look out for:
Monday: No major earnings of note
Tuesday: Sluggish spending by telecommunication companies probably pushed Ericsson’s (ERICB SS) adjusted Ebit 20% lower in the fourth quarter. But beating Nokia to a $14 billion contract from AT&T Inc. in December should give its mid-term prospects a much-needed boost, BI said. Investors are also keen to know who will become the new finance chief as the March departure of Carl Mellander fast approaches.
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Primark-owner AB Foods (ABF LN) is expected to report a deceleration in retail sales growth at constant currencies to about 11% in its fiscal first quarter. Growth at the tail end of the period was probably slower still, consistent with recent data showing physical stores still lagging online trade, Citi said. Ramping up store openings could help lure more customers to its flagship shops, BI said.
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New gaming product launches and Christmas demand likely weren’t enough to offset tough year-on-year revenue comparisons for Logitech (LOGN SW), although the pace of decline is estimated to have slowed to 2.1%. A bottoming out in the coming months would herald a fresh start under new CEO Hanneke Faber, but promotional costs and its retail-heavy product mix could wipe at least 50 basis points off the operating margin, BI said.
Wednesday: ASML’s (ASML NV) revenue growth might have dwindled to less than 8% in the fourth quarter amid the chip sector slowdown, despite strong Chinese demand ahead of export controls. While sales may take a breather this year, they could see a strong recovery in 2025 as key customer TSMC opens its wallet, BI said. ASML gets about one-third of its revenue from the Taiwanese semiconductor supplier, data compiled by Bloomberg shows.
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SAP’s (SAP GY) fourth-quarter results will be screened for clues on corporate appetite for cloud migration. Watch for a first glimpse into 2024 targets, which should indicate a modest improvement over 2023, BI’s Anurag Rana says. SAP should continue to profit from clients looking to reduce costs by moving their software to the cloud this year, keeping its order backlog above 20%. Cloud revenue is estimated to jump more than 25% this year to more than €17 billion.
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Swedbank’s (SWEDA SS) net interest income likely climbed 18% in the last three months of 2023, although that’s only about a third of the pace of the previous quarter. With policy rates set to fall, 2024 could see yet more pressure on the key earnings metric, BI said. And, even if the bank’s CET1 ratio stays well above the regulatory requirement, share buybacks will likely be put on hold until its anti-money laundering probe concludes, probably this year.
Thursday: Nokia’s (NOKIA FH) 2024 forecast will be the most sought-after item in its fourth-quarter report, after the Finnish company flagged that it would miss last year’s targets. Sales headwinds have been building as carriers put off spending on 5G technology, so Nokia will have to deliver on “ambitious” cost cuts to keep investors on its side, BI said.
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Organic growth from LVMH’s (MC FP) fashion and leather goods probably stayed around 9% in the fourth quarter, but wines and spirits likely continued their slump, as demand continues to soften after the post-Covid boom. Any gains this year will probably be weighted to the second half, and LVMH will need to tightly manage higher inventory through the first six months, said BI’s Deborah Aitken.
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STMicroelectronics’ (STMMI IM) high automotive exposure should help it meet guidance, the only segment expected to have shown positive growth in the fourth quarter, consensus shows. Negative readacross from US peer Microchip Technology Inc. earlier this month may be exaggerated. Automotive chip demand remains resilient, particularly for electric vehicles, according to Citi.
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Swedbank peer SEB’s (SEBA SS) NII is seen up more than 26% in the fourth quarter — the most among Nordic banks — although costs likely expanded at a faster pace than revenue, BI said. Expect NII growth to slip 2% to 3% this year as the Riksbank goes into easing mode, analysts Mar’Yana Vartsaba and Philip Richards said.
Friday: Remy Cointreau’s (RCO FP) organic sales are estimated to have fallen 23% in its fiscal third quarter, after weak US demand forced the French distiller to cut its full-year forecast in October. Watch for comment on the US and China, which recently announced a probe into brandy dumping, as the guidance hinges on cognac inventory overhang in the US and the sale of liquors for the Chinese New Year, according to BI. The stock — on a downward spiral since January 2022 — is the biggest decliner in the Stoxx Europe 600 Food, Beverage and Tobacco Index this year.
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Reality bites for Lonza (LONN SW), still reeling from the drop in demand for Covid vaccines. ZKB analysts estimate a 500 million Swiss-franc contribution to 2023 revenue from the Moderna partnership and a core Ebitda margin close to 30%, thanks to the 200 million-franc termination fee tied to the US company’s exit. But, with growth prospects on hold until 2025, investors will probably stay away until a permanent CEO is named.
–With assistance from Christopher Jungstedt, Paula Doenecke, Laura Malsch, Valentine Baldassari, Jenny Che and April Roach.
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