Sunday, May 24, 2009

Bullish market news? TSMC cancels earlier layoffs:

From Digitimes:

Taiwan Semiconductor Manufacturing Company (TSMC) has asked all laid-off employees to return to work to make amends for what company chairman Morris Chang describes as "regrettable actions" to dismiss them amid the economic downturn.

In an internal message, Chang expressed regret that when laying off those employees the company failed to show them appropriate respect or fully consider the difficulty for them to find new jobs in the bad economic times, according to the company.

Chang said that on May 13 company vice president YP Chin already extended an invitation to all the former employees to return to work beginning on June 1.

(You can also see this WSJ article)

Hmm.. I wonder if the end user demand is a lot stronger than is currently expected?

Background: Some of the biggest fables chip vendors are TSMC customers. I consider TSMC and other pure play foundries (SMIC UMC etc) to be an early leading indicator in the semiconductor space. The semiconductor industry itself is considered to be an early cyclical. This sector can be considered an early leading indicator of the end user demand.

How is that? Let’s take the handset sector for example. When handset vendors anticipate demand in their channel, they have to order the chips from the chip vendors a few months in advance. These chip companies are mostly fabless. They essentially have a “blueprint” for a chip which needs to get fabricated someplace in Asia, mostly Taiwan. The round trip time to when the chip companies have the actual chips in hand can be a few months.

So the number of companies rushing to have their “blueprints” being converted to actual chips can give us a good idea of the chip sector demand, which is an early reflection of the “anticipated” consumer demand. Back in mid February, reports started surfacing that chip foundries in Asia were cutting back or cancelling unpaid time off. That was a good early indicator that end user demand was coming back. Till then, TSMC had asked it’s employees to take compulsory unpaid time off. This was cancelled and the employees were ordered back. Now even the laid off employees are being reinstated!

Around March 10th, TSMC raised guidance and reported a surge of rush orders. That coincided almost perfectly with the “generational” low in March.

If TSMC has cancelled the layoffs it announced at the beginning of this downturn, that’s definitely good news for the global economy. I won’t be surprised to hear some surprisingly good economic numbers in the next month or two(Expect the “worst is over” crowd to reach a crescendo). Further, the 50day-200 day moving average crossover I reported in early April on the Shanghai index is a very solid bullish signal from a technical perspective. This also fits in nicely with my expectation of a bullish move till July.

Color me extremely bullish on this news.

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