(Bloomberg) — The clouds appear to be clearing for the global chip industry after a year marked by weak demand and geopolitical pressures, promising relief for ASML Holding NV and STMicroelectronics NV, reports this week.
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Although a significant recovery may still be far away, Taiwan Semiconductor Manufacturing Co.’s bullish outlook last week could be a sign that the worst of the recession is over.
The growing use of artificial intelligence is driving demand and more chipmaking foundries are expected to open over the next two years, according to Ruben Devos, an analyst at Kepler Cheuvreux. Global chip sales rose for the first time in more than a year in November.
An update from SAP SE, a gauge of the global software industry, will be examined for clues on business spending trends, while reports from Ericsson AB and Nokia Oyj will reflect both sides of the 5G divide as some telecom operators pull the network budget strings. investment.
All eyes will be on LVMH SE’s sales report, looking for signs of a broader slowdown in the luxury sector, and Swedbank AB will kick off the reporting season for Nordic banks.
On the food and beverage front, Associated British Foods Plc and Remy Cointreau Cointreau SA are expected, as are Swiss electronics supplier Logitech International SA and pharmaceutical ingredients maker Lonza Group AG.
Highlights to watch out for:
Monday: no major benefits to note
Tuesday: Weak spending by telecom companies likely caused Ericsson’s (ERICB SS) adjusted Ebit to fall by 22% in the fourth quarter. But beating Nokia to a $14 billion deal with AT&T Inc. in December should give its mid-term prospects a much-needed boost, BI said. Investors are also curious about who will become the new CFO, ahead of Carl Mellander’s departure in March.
AB Foods (ABF LN), owner of Primark, is expected to report a deceleration in its retail sales growth at constant currencies to around 11% in its fiscal first quarter. Growth at the end of the period was likely even slower, in line with recent data showing that physical stores continue to lag behind online commerce, Citi said. Accelerating store openings could help attract more customers to its flagship stores, BI said.
New gaming product launches and Christmas demand likely weren’t enough to offset tough year-over-year revenue comparisons for Logitech (LOGN SW), although the pace of decline is expected to have slowed at 2.1%. A low point in the coming months would mark a fresh start under new CEO Hanneke Faber, but promotional costs and the retail-heavy product mix could wipe at least 50 basis points off the operating margin, BI said.
Wednesday: ASML’s (ASML NV) revenue growth may have fallen to less than 8% in the fourth quarter amid a slowdown in the chip sector, despite strong Chinese demand ahead of export controls. Although sales may take a pause this year, they could see a strong recovery in 2025, as key customer TSMC opens its portfolio, BI said. ASML gets about a third of its revenue from the Taiwanese semiconductor supplier, according to data compiled by Bloomberg.
SAP’s (SAP GY) fourth-quarter results will be scrutinized for clues about businesses’ appetite for cloud migration. Watch for a first look at targets for 2024, which should show a slight improvement over 2023, says BI’s Anurag Rana. SAP is expected to continue to benefit from customers looking to reduce costs by migrating their software to the cloud this year, keeping their order backlog above 20%. Cloud revenue is expected to grow by around 24% this year to more than €17 billion.
Swedbank’s (SWEDA SS) net interest income likely climbed about 19% in the final three months of 2023, although that’s only about a third of the previous quarter’s pace. With policy rates falling, 2024 could see even more pressure on the key earnings metric, BI said. And even though the bank’s CET1 ratio remains well above regulatory requirements, share buybacks will likely be suspended until the conclusion of its anti-money laundering investigation, likely this year.
Thursday: Nokia’s (NOKIA FH) forecast for 2024 will be the most sought-after item in its fourth-quarter report, after the Finnish company signaled it would fail to meet last year’s targets. Sales headwinds have increased as operators have postponed spending on 5G technology, so Nokia will need to make “ambitious” cost cuts to keep investors on board, BI said.
LVMH’s (MC FP) fashion and leather goods organic growth likely remained around 9% in the fourth quarter, but wines and spirits likely continued their decline as demand continues to weaken after the boom post-Covid. Any gains this year will likely carry over to the second half, and LVMH will have to closely manage higher inventories in the first half, said BI’s Deborah Aitken.
STMicroelectronics’ (STMMI IM) heavy exposure to automotive should help it meet its guidance, the only segment expected to have posted positive growth in the fourth quarter, according to consensus. The negative results of its American peer Microchip Technology Inc. earlier this month could be exaggerated. Demand for automotive chips remains resilient, particularly for electric vehicles, according to Citi.
Swedbank peer SEB (SEBA SS)’s NII is expected to rise around 26% in the fourth quarter – the highest among Nordic banks – although costs are likely to have risen at a faster rate than revenues, it said. BI. NII growth is expected to decline by 2-3% this year as the Riksbank moves into easing mode, analysts Mar’Yana Vartsaba and Philip Richards said.
Friday: Rémy Cointreau’s (RCO FP) organic sales reportedly fell 23% in its fiscal third quarter, after weak U.S. demand forced the French distiller to cut its forecast for the entire year in October. Watch for comments on the US and China, which recently announced an investigation into brandy dumping, as forecasts depend on excess US cognac stocks and New Year’s liquor sales Chinese year, according to BI. The stock – in a downward spiral since January 2022 – is the biggest decliner in the Stoxx Europe 600 food, beverage and tobacco index this year.
Reality bites for Lonza (LONN SW), still reeling from falling demand for Covid vaccines. ZKB analysts estimate a contribution to 2023 turnover of 500 million Swiss francs ($576 million) from the Moderna partnership and a core Ebitda margin close to 30%, thanks to 200 million francs in compensation for termination linked to the exit from the American company. But with growth prospects on hold until 2025, investors will likely stay away until a permanent CEO is named.
–With help from Christopher Jungstedt, Paula Doenecke, Laura Malsch, Valentine Baldassari, Jenny Che and April Roach.
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