Morgan Stanley Examines US Semiconductor Earnings Week: Five Core Names Report in Quick Succession, Strong Fundamentals Fail to Resolve the "Cycle Sustainability" Question

Title context: Morgan Stanley Examines US Semiconductor Earnings Week: Five Core Names Report in Quick Succession, Strong Fundamentals Fail to Resolve the "Cycle Sustainability" Question Text: Morgan Stanley's latest North American semiconductor industry research report notes that the industry's fundamentals are currently strong, but the market's core debate has shifted from short-term performance figures to "how long the upcycle can last." The report focuses on previewing five companies scheduled to report earnings this week Amkor Technology (AMKR.US), NXP Semiconductors NV (NXPI.US), Allegro Microsystems (ALGM.US), Intel Corporation (INTC.US), and SanDisk (SNDK.US). Below are the key points of focus for each company's earnings: Amkor Technology: Focus on gross margin sustainability and the NVIDIA Corporation partnership Morgan Stanley rates Amkor Technology "Equal-weight" with a price target of US$70. The company will report earnings after the market close on October 26. After second-quarter results beat expectations, the market is focused on whether its gross margin can continue to improve. The company's third-quarter gross margin guidance is 18.5%-19.5%, above prior second-half expectations. The computing business continues to benefit from AI demand and HDFO ramp-up, but the communications business faces memory constraints and the impact of SiP migration to Vietnam. The report focuses on whether pricing can bring further upside, and the sustainability of current margin levels extending into 2027. In addition, NVIDIA Corporation and Amkor Technology announced they will expand Korean interposer wafer capacity by more than 300% by the end of 2028, and reached a new US$1.3 billion agreement (total commitment reaching US$3 billion). Amkor will also expand its Arizona investment to US$12 billion, but management reiterated that it expects a 1-2 percentage point operating margin headwind starting in 2027, with the Arizona facility expected to begin accretive profit only after the end of 2029. NXP Semiconductors NV: Automotive business bottoming, focus on inventory and pricing negotiations Morgan Stanley rates NXP Semiconductors NV "Overweight" with a price target of US$338. The company will report earnings after the market close on October 27. The report expects third-quarter results and fourth-quarter guidance to be broadly in line with expectations, but the automotive business is expected to improve. Morgan Stanley's third-quarter distributor survey shows that the proportion of respondents expecting the automotive business to be weaker than seasonal levels has fallen from 15% in the previous quarter to 11%, indicating signs of stabilization in the market. Inventory tracking shows that automotive OEM and supplier inventories are already below historical medians, and Western Tier 1 suppliers continue "hand-to-mouth" purchasing. As lead times lengthen, customers are seeking to lock in forward supply (63% of respondents reported lengthening lead times). The report focuses on: 1) automotive inventory normalization and order patterns; 2) whether NXP Semiconductors NV gains more leverage in 2027 pricing negotiations as supply tightens (the survey shows 55% of respondents reported firm analog chip pricing and 54% reported firm MCU pricing). Allegro Microsystems: Data center business booming, focus on 2027 pricing Morgan Stanley rates Allegro Microsystems "Overweight" with a price target of US$52. The company will report earnings before the market open on October 29. The report expects third-quarter results to land at the high end of guidance, with strong fourth-quarter guidance. Its automotive business is recovering earlier than peers, driven mainly by higher content per vehicle rather than restocking. June-quarter orders grew 30% year over year. The report focuses on: 1) automotive momentum and 2027 pricing negotiations (whether an improved pricing environment can support a more favorable outcome in 2027 after a low-single-digit ASP decline in 2026); 2) data center growth and current sensor penetration. In the June quarter, the data center business grew 32% quarter over quarter, accounting for 17% of total revenue; current sensors surged 66% quarter over quarter. Management expects the data center business to more than double in fiscal 2027 (Morgan Stanley expects +114% year over year), driven by hyperscaler capex and design wins. Intel Corporation: Server "shortage-driven price hikes" prop up surface prosperity, PC and foundry harbor structural concerns Morgan Stanley rates Intel Corporation "Equal-weight" with a price target of US$84. The company will report earnings after the market close on October 29. Morgan Stanley sees three core points for this earnings report: Point 1: Server business appears prosperous, but the "big beat" relies entirely on shortage-driven price hikes The report expects its server data to be very strong, but Morgan Stanley is "skeptical" of this. Server microprocessors are currently in persistent shortage, mainly due to strong demand from AI agents' use of CPUs. Intel Corporation is taking the opportunity to increase supply and has imposed double-digit price increases on some transactional customers, which will most likely drive an earnings beat. But Morgan Stanley points out that such strong data is highly dependent on the "shortage," and buy-side expectations have already far outpaced Morgan Stanley and Wall Street consensus. Point 2: PC market deteriorating rapidly, may drag down 2027 expectations by US$3-4 billion PC remains Intel Corporation's largest revenue source. But PC market conditions are deteriorating sharply: third-quarter ODM PC assembly volumes fell 17% quarter over quarter (normal seasonality is +5%) and fell 26% year over year; Morgan Stanley expects 2027 PC shipments to decline 11%. If the segment's revenue declines in line with PC shipments in 2027, it would bring a US$3-4 billion downside shock to consensus. Point 3: Foundry progress is smooth, but faces the structural contradiction of "no spare capacity for foundry" Although 18A and 14A development is progressing well, Morgan Stanley raises a fundamental question about its foundry strategy: if Intel Corporation's CPUs will be sold out through 2028, can they still free up enough spare capacity to meet the needs of large foundry customers? The report further notes that Wall Street often treats foundry as a process technology issue, but Morgan Stanley's concern is more structural Intel Corporation lacks core foundry capabilities, and "not even being able to satisfy its own demand" is the worst advertisement for attracting foundry customers. SanDisk: Strong memory market, but the earnings report itself is unlikely to be a catalyst Morgan Stanley rates SanDisk "Overweight" with a price target of US$1,750. The company will report earnings after the market close on October 29. The report believes the memory market is very strong, but does not expect this quarter's earnings to be a catalyst. Three months ago the market was extremely pessimistic on near-term pricing, but Morgan Stanley was optimistic, seeing strong double-digit price increases in the third and fourth quarters. The report believes data center demand (especially eSSD) is sustainable, spec downgrades on the DRAM side (reducing main memory) increase demand for high-speed local storage as cache, and the shortage of hard disk drives (HDD) reduces the tendency to shift to HDD. Although industry fourth-quarter ASPs are expected to rise 15%-20%, SanDisk's increase may be slightly lower. The report notes that the company tends to give conservative guidance during strong periods, and expects third-quarter results to clearly beat expectations, while fourth-quarter guidance is relatively in line with expectations.