Weekly Roundup 2022-10-07

Weekly Roundup 2022-10-07

Lunar Capital Weekly Roundup

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723 63 726 65 675 -10.92%
NASDAQ Composite 15 833 10 576 10 652 -32.72%
S&P 500 4 797 3 586 3 640 -24.11%
Prime Lending Rate 7.25% 9.75% 9.75% 34.48%
Lunar BCI WW Flexible Fund 165.68 141.13 145.28 -12.31%
USD/ZAR 15.96 18.10 18.14 13.66%
EUR/ZAR 17.95 17.75 17.66 -1.62%
Brent Crude 77.86 85.29 98.52 26.53%

Source: iress

Company and Market News

Semiconductors

Earnings reports for Q3 in the USA are starting to come in. Last week, AMD (Applied Micro Devices), a semiconductor (computer chip) manufacturer, released a preview of their Q3 report. We think it will be interesting to review the Q3 results and outlook for semiconductor businesses. Their results and outlook may provide insights into the status of the industry and their respective businesses.

Revenue for AMD for Q3 is expected to be approximately $5.6 billion, this is compared to their previous expectations of $6.7 billion. This large decrease in expected revenue is primarily due to decreased demand in their client segment (laptops, PC’s, gaming, etc.), down 40% year-on year. However data centre revenue was up 45% year on year. Data centres comprises of 28.6% of total revenue for AMD. At the end of August this year, Nvidia released their Q2 results which showed similar trends. Their gaming segment recorded revenue of $2.04 billion, which was down 33% from a year ago. While their data centre segment grew by 61% from a year ago to $3.81 billion. Micron, who also operate in these fields but focus more on memory and storage products, saw decreases in sales in all their segments. The decrease in personal computing revenue from these companies is an indicator of the effects of the recession on consumers’ wallets. Consumers are likely holding out with regards to immediately buying new products as both inflation and interest rates take effect on them. Another factor that could be playing into the decrease in personal computing revenue is that many individuals would have upgraded or bought new laptops or PC’s during the Covid-19 pandemic and would unlikely need to immediately purchase a new one. Companies also ensured that their staff were had adequately specified laptops at home to meet the work-from-home requirements during the pandemic. These machines are still adequate as workers come back into the office. Semiconductor companies have seen heavy decreases in their stock prices this year compared to the overall market. Micron’s share price decreased by 44.7%, and AMD and Nvidia’s share price decreased by 61.1% and 59.9%, respectively. With the on-going geo-political and economic tensions between USA and China, semiconductor companies are coming under increasing pressure to limit the sale of high-end semiconductors by Western countries to China.

Disclosure: Nvidia is held in the Lunar BCI Worldwide Flexible Fund.

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A&EO.

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