Category: personal_noteS

First High-NA for Intel

Intel received the world’s first high NA EUV (TWINSCAN EXE:5200) from ASML recently.

The purchase order was made in Jan 2022 – so it took some 2 years.

The machine is said to be 2x as expensive, or $350mn (or more). ASML says it has taken between 10 and 20 orders to date.

If TSMC was to take 10 machines, it will cost $3.5-4bn, or some 13% of its $28-32bn capex target for 2024.

If Intel to budget 35% of its revenue as capex, (say $60bn), it would be ~$21bn, 10 high-NA machines would be 17-19% of that capex budget.

To justify the cost of machine, high-NA “enables building transistors that are about 1.7 times smaller than today, resulting in almost triple the transistor density“. So if density is almost 3x, and assume price per wafer is up by ~45%, then cost per transistor could be halved.

Meanwhile, ASML said 2024 revenue guidance is similar to 2023, which was EUR27.56 billion.

How China exported deflation & what data to watch

1/ China PPI

China’ PPI (12-month) started to decline from Nov 2021 (Dec 2020 – Nov 2021 when global demand running high and supply running low), and entered the negative territory in Oct 2022 (global demand shock after Fed hiked rates & war in Ukraine)

China’ PPI (12-month) has remained in negative territory for 16 month as of Jan 2024 data. Looks to remain negative for next 6 month at least.

 

2/ RMB depreciation

Average exchange rate for RMB has depreciated ~9% in 2 years against USD, which caused additional price deflation.

Average exchange rate in 2023: 0.1415 USD.

Average exchange rate in 2021: 0.155 USD.

 

3/ Domestic demand

Hard to quantify, but weak China domestic demand is partially causing weakness in global demand in commodities etc., especially from the real estate sector., thus reducing inflation pressure.

The sharp dropped happened in August 2021, when Evergrande’s debt problem was catching world’s attention.

Personal computers 2024

Intel (2023q4 earnings call): “Customer inventory levels have normalized, and 2023 PC consumption was in line with our 270 million-unit forecast. We expect the PC TAM up low single digits year on year in 2024, in line with third-party estimates. We expect to ship approximately 40 million AIPCs in 2024 alone.”

IDC: The total PC market of 2024 should see growth of 3.4% compared to 2023.

Logitech (FY24q3 earnings call): implied low single digit rev growth – “Looking ahead to FY25, we do not anticipate an inflection point in the slope of this curve. While the rate of our net sales declines has improved, there are a number of headwinds and uncertainties that may impact our net sales throughout FY25.”

 

Bridgewater’s alpha return after 2018

2019: flat

The firm’s flagship Pure Alpha strategy was essentially flat in 2019, with Pure Alpha 18 Percent, the more leveraged version, falling 0.5 percent for the year, according to an investor in the funds. The less leveraged version, Pure Alpha 12 percent, gained 0.5 percent for the year.

2020: -7.6%

Bridgewater Associates’ flagship Pure Alpha fund lost 7.6% in 2020, while the firm’s All Weather fund was up over 10%.

Pure Alpha 12% Strategy fund, which went from posting a 0.29% return in 2019 to suffering a loss of -10.63% in 2020. Furthermore 2020 also wiped out two years of returns on their Pure Alpha 18% Volatility Strategy.

2021: 8%

Performance of Bridgewater’s flagship global macro fund Pure Alpha 18% Vol fund was up 7.95% in 2021 compared with a loss of 12.6% in 2020. The firm’s All-Weather 10% Vol risk-parity strategy returned 11.57% in 2021 and 9.5% in 2020.

2022: 9.4% (6% through Nov)

The Pure Alpha fund tumbled about 13% in the fourth quarter through November, cutting its year-to-date gain to 6%.

Pure Alpha II tumbled in October and November 2022 after having been up 22%. It ended that year up 9.4%.

2023: -7.6%

Bridgewater Associates’s flagship hedge fund lost 7.6% last year, with all of the drop coming in the last two months of 2023, according to people familiar with its performance. The losses for the world’s biggest hedge fund corresponded to the biggest two-month gain in global bonds since at least 1990 and a roughly 14% gain in US shares. The Pure Alpha II fund was up 7.5% through October before dropping about 14% in the following two months.

The firm’s long-only All Weather fund returned 10.6% last year, one of the people said.

 

What did Japan’s housing price look like during 1990s housing bubble?

Price-to-income ratio

The average price of a new 70 sqm apartment in 1990 in Tokyo was 107,660,000 Yen, or 1,538,000 Yen/sqm, while the average annual income was 5,940,000 Yen. Before the bubble, the average price-to-income ratio in 1985 was 8.08.

Financial Times article (https://www.ft.com/content/2ba1cb74-f598-3a4e-9edd-4e55a48d3480)

So in 1990, new home price is ~18x annual income and before bubble is ~8x.

Relative performance

Price rose ~4x in 15 years

Peak to bottom took 5 years; declined ~40% (1990-1995)

From 1975 – 1995, price still rose ~2.5x in 20 years.

Source: Home Ownership and Economic Change in Japan

Relative to global (before bubble)

Price-to-income ratio is actually more than doubling US-level and is the highest among developed countries.

Source: Introduction to “Housing Markets in the U.S. and Japan”

However, Japan’s women work participation rate is lower than the US back then, which can impact household income.

Source: Lessons from the rise of women’s labor force participation in Japan

Income level

Peak income is actually lower for later generations.

Source: The Impact of the Rise and Collapse of Japan’s Housing Price Bubble on Households’ Lifetime Utility

Due to other reasons, e.g. Asia Financial Crisis, the property market didn’t seem to recover until later years.

Source: New apartment prices in Japan since 1956,
Tokyo Kantei via JAPAN PROPERTY CENTRAL

TSMC in EU

Capital structure. The setup seems simple. Total cost is 10 billion euros. German gov shall give 5 billion euros in subsidies. TSMC will put down 3.5 billion euros, for a 70% stake. Bosch, Infineon Technologies and NXP Semiconductors will each put down 500 million for a 10% stake – 30% total.

Timing. TSMC’s fab in Japan announced in Oct 2021, started construction in Apr 2022 and is finishing in Q1 2024 (2 years of construction), and began mass production in H2 2024. The Kumamoto plant will start with 28-nm and 22-nm chips.

TSMC’s German fab hasn’t started yet. Should it began construction in H1 2024, it should finish in 2026 and start mass production in 2027. which sounds a bit far away. And this fab is for mature node (28/22nm planar CMOS and 16nm/12nm FinFET nodes).

Cost. Back in 2016, TSMC’s Nanjing plant (Fab 16) is said to cost $3bn for 20,000 12-inch wafers per month, plus the construction of a design service center. The German plant is designed to have 40,000 wafers a month, but still, the cost has inflated to almost 2x after 8 years, or ~8% annually.

 

MSCI China 2023 EPS growth expectation vs. reality

MSCI China EPS in CNY terms from 2023 Q1-Q3 is 1.08, 1.23, 1.25, growing 3.85%, 1.65%, 2.46% yoy.

While reversing the downtrend in 2022, the growth is less than expected. Even with 23q4 current expectation of 9% growth yoy, MSCI China EPS growth is ~4.3% for the full-year 2023.

What was the expectation at the end of 2022 / early 2023?

Let’s take a look:

UBS (Nov/Dec 2022) – “We expect significant easing in COVID-19 restrictions in the second quarter. We forecast earnings growth of 15%-20% for MSCI China, which would be underpinned by lower commodity prices, improved economic growth and lower asset write-downs,”

Morgan Stanley (EPS growth in 2023: 12% -> 13% -> 16%) – for 2023 YE MSCI China Index target, in Nov 2022 report it was 59; raised to 70 in Dec 2022; raised again to 80 in Jan 2023

Goldman Sachs (Dec 2022) – “revise up our earnings forecasts to 13% from 8%” (the link is a report in Jan 2023 but revision is made in Dec 2022.

Citi (Jan 2023) – “expects earnings per share for the MSCI China index to grow 15% year-over-year in 2023. ”

The outcome is the big miss in earnings. We are like to see ~2% 2023 EPS growth in reality vs. expectation of ~15% at the beginning of the year

 

 

German car market 2023

Based on German’s official passenger car registration, here are some takeaways:

  • 2023 total German market is ~2.84mn cars, up 7.3% yoy from 2022; but in 2019 that number is 3.6mn, so still down 21% from 2019-level (most decline happened during 2020 and 2021)
  • German brands got ~52% market share and the three German companies got ~59% market share

  • Audi (+16%), Mercedes (+14%), and BMW (+11%) brands are all share gainers from 2022
  • Skoda (+17%) and Seat (+19%) brands, owned by VW, are also share gainers
  • Tesla, although with a local factory, only got 2.2% market share in 2023, and is losing shares in German vs 2022; German market is less than 4% of Tesla’s global deliveries
  • Ford got 4.1% market share in 2023, and keeps losing market share. Pressure continued since covid. Ford new registration in German dropped over 30% in 2020 and dropped another 35% in 2021. Its 2023 number is still a bit lower than 2021
  • Two South Korean brands, Hyundai and Kia, are flattish in number of cars, but lost small share as the market grew.
  • Toyota new registration PV dropped 4% yoy, also a share loser in German.

Market share in 2023 by origin of brands

 

Japan’s capital market to thrive (?)

Japanese gov has been pushing for corporate governance reform for years.

It has drawn lots of attention, but how effective is the result? Several things to watch:

1/ new M&A guidelines – aim to spur M&As. But can real deals happen soon? can these deals not only give shareholder returns, but also easy for acquirers to consolidate/get synergies after the deal?

2/ “Doubling Asset-based Incomes Plan” – aim to let more retail investors buy more stocks. Seem to be a good idea and retail investors can pay higher p/e, but will people just buy more US stocks? will people really buy in the improved corporate quality narrative?

3/ investors communication / forums etc. – maybe can make more info available in english first?

It seems harder to move money (in & out of JP to the US) compared with say HK.