The Effect of Lower Interest Rates on the Semiconductor Industry

Impact on Capital Expenditure Plans

Lower interest rates are enabling semiconductor companies like Intel, Texas Instruments, TSM, Micron, and AMD to maintain or increase their capital expenditures, enhancing their competitive edge and operational efficiency.

"These benefits will carry forward to next year as well. For 2025, gross capital spending is targeted between $20 billion and $23 billion and net capital spending between $12 billion to $14 billion, increased capital efficiency has a positive impact to gross margins over time, but we will also accelerate improvements by generating roughly $1 billion of savings in" --- (INTC, earning call, 2024/Q2)

"As we continue to invest to strengthen our competitive advantage in manufacturing and technology as part of our long-term capacity planning, our capital expenditures are expected to remain at elevated levels." --- (TXN, sec filing, 2024/Q1)

"In the third quarter and better cost improvement efforts, including productivity gains, partially offset by continued dilution from N3 ramp up, N5 to N3 tool conversion costs, and higher electricity prices in Taiwan. Excluding the impact of foreign exchange rate, of which we have no control over, and factoring in the margin impact from our global manufacturing footprint expansion plans, we continue to forecast a long-term gross margin of 53% and higher is achievable. Next, let me talk about our 2024 capital budget." --- (TSM, earning call, 2024/Q2)

"We forecast capital expenditures to increase sequentially in the fiscal fourth quarter to approximately $3 billion." --- (MU, earning call, 2024/Q3)

"I think we're very pleased with the progress that we've made over the last few years and we continue to focus on growing being a very strong growth company and we'll continue to evaluate those capital allocation opportunities as we go." --- (AMD, event transcript, 2024/05/08)

Influence on R&D Investment

Lower interest rates are driving significant R&D investments across the semiconductor industry, with companies like Texas Instruments, Broadcom, AMD, Intel, and TSMC all increasing their R&D spending to support future growth and technological advancements.

"Or based on the R&D investments you are making, do you think that changes substantially?" --- (TXN, earning call, 2024/Q1)

"Operating expenses increased 4% year-on-year to $868 million on increased investment in R&D, resulting in semiconductor operating margins of 55%." --- (AVGO, earning call, 2024/Q2)

"Underneath that, we had data center and embedded segments that performed quite well, now being over 50% of our revenue with declines in the clients and gaming segment We continue to invest heavily in R and D. Our R and D pipeline is the foundation for our future growth.And so with that, the majority of those investments went towards our data" --- (AMD, event transcript, 2024/05/08)

"The continued ramp of our Intel 4 and Intel 3 Ireland facility and elevated R&D and start-up costs to support the rapid progression of our leading-edge technology development will also weigh on profitability.Mobileye revenue of $440 million improved 84% sequentially due to non-recurrence of the significant inventory drawdown that occurred in Q1." --- (INTC, earning call, 2024/Q2)

"But please, I can recall in 2021, I mean, TSMC do raise the gross margin target by them because to support the future growth with more R&D, as the technology continues to be enhanced and more difficult and one of your customers at this is supportive that to suggest that you should charge even more." --- (TSM, earning call, 2024/Q2)

Effect on Demand from Key Sectors

Lower interest rates have bolstered demand in key sectors such as automotive, hyperscalers, and AI, driving competitive pricing and increased CapEx. This has led to higher semiconductor consumption across industries, as seen in Tesla's cost strategies, Google's CapEx growth, and Microsoft's broad demand surge.

"Automotive—Demand, Sales, Deliveries and Infrastructure Our cost reduction efforts, cost innovation strategies, and additional localized procurement and manufacturing are key to our vehicles’ affordability and have allowed us to competitively price our vehicles." --- (TSLA, sec filing, 2024/Q2)

"So it looks like from the outside at least, the hyperscaler industry is going from kind of an under bill situation this time last year to better meeting the demand with capacity right now to potentially being overbuilt next year if these CapEx growth rates keep up." --- (GOOG, earning call, 2024/Q2)

"So another important point of building that out. And of course, as we've seen in different supply demand scenarios, the ability to control that supply is another benefit of the business model." --- (INTC, event transcript, 2024/04/02)

"I would just say that we see Generative AI as a very key opportunity across our products." --- (AAPL, earning call, 2024/Q2)

"In the non-AI portion of our consumption business, we saw greater-than-expected demand broadly across industries and customer segments as well as some benefit from a greater-than-expected mix of contracts with higher in-period recognition." --- (MSFT, earning call, 2024/Q3)

Influence on Supply Chain and Production Costs

Lower interest rates impact the semiconductor industry's supply chain and production costs by influencing macroeconomic factors such as capital equipment costs and employee wages (NVDA). Companies are building supply momentum (AMD) and diversifying sourcing strategies (TXN) to mitigate these effects.

"While difficult to isolate and quantify, these macroeconomic factors can also impact our supply chain and manufacturing costs, employee wages, costs for capital equipment and value of our investments." --- (NVDA, sec filing, 2025/Q1)

"And similarly, on the supply standpoint, we're continuing to build supply momentum." --- (AMD, earning call, 2024/Q1)

"We're doing the same thing with our supply chain. Right. Okay. And we are largely diversified and dual triple source." --- (TXN, conference, 2024/06/05)

"https://t.co/ChxWoqlw6o This funding will help shore up our supply chain and create opportunities for companies from the U.S. and our allies." --- (AVGO, Twitter, 2024/05/07)

"The joint venture will manufacture wafers for sale to Intel on a cost-plus-margin basis." --- (INTC, press release, 2024/06/04)

Effect on Competitive Dynamics

Lower interest rates are enabling semiconductor companies like AMD, Intel, Qualcomm, Nvidia, and Micron to accelerate product development, expand roadmaps, and enhance competitive positioning. This environment intensifies competition, necessitating continuous innovation and cost management to maintain market leadership.

"We are actually accelerating, expanding our roadmap and adding several products as well as pulling in products going forward. From the standpoint of competitiveness, we're very confident that we will be extremely competitive in this market, not just in inference, but also in training going forward." --- (AMD, event transcript, 2024/05/08)

"Obviously, there's much more competitive intensity in our business. There is geopolitical dynamics that makes we have to navigate." --- (INTC, conference, 2024/06/12)

"And as you know, competitive positioning is stronger at the higher tiers, and so that's helping us." --- (QCOM, earning call, 2024/Q2)

"Today, we continue to push the frontiers of accelerated computing and AI. Our competitive advantage is our expertise, scale and velocity to create the most advanced and end to end optimized AI computing systems, create new markets for them and attract the world's developers while delivering extraordinary value to our customers." --- (NVDA, event transcript, 2024/06/26)

"To remain competitive we must continuously develop and implement new products and technologies and decrease manufacturing costs in spite of ongoing inflationary cost pressures." --- (MU, sec filing, 2024/Q3)

Impact on Mergers and Acquisitions

Lower interest rates have facilitated significant mergers and acquisitions in the semiconductor industry, exemplified by Broadcom's VMware Merger and Seagate's SoC operations acquisition, leading to increased amortization of acquisition-related intangible assets and substantial cash outflows for investing activities.

"The decreases were primarily due to higher amortization of acquisition-related intangible assets from the VMware Merger." --- (AVGO, sec filing, 2024/Q2)

"Amortization of Acquisition-Related Intangible Assets Amortization of acquisition-related intangible assets recognized in operating expenses increased $479 million, or 138%, and $923 million, or 133%, for the fiscal quarter and two fiscal quarters ended May 5, 2024, respectively, compared to the prior year fiscal periods primarily due to higher amortization of customer-related intangible assets from the VMware Merger." --- (AVGO, sec filing, 2024/Q2)

"The $25,762 million increase in cash used in investing activities during the two fiscal quarters ended May 5, 2024 compared to the prior year fiscal period was primarily due to $25,976 million cash paid in connection with the VMware Merger and the acquisition of Seagate’s SoC operations, net of cash acquired." --- (AVGO, sec filing, 2024/Q2)

"Our short-term and long-term liquidity requirements primarily arise from: (i) business acquisitions and investments we may make from time to time, (ii) working capital requirements, (iii) research and development and capital expenditure needs, (iv) cash dividend payments (if and when declared by our Board of Directors), (v) interest and principal payments related to our $76,521 million of outstanding indebtedness and (vi) payment of income taxes." --- (AVGO, sec filing, 2024/Q2)

Impact on Employment and Talent Acquisition

Lower interest rates have intensified competition for talent in the semiconductor industry, with companies like Qualcomm facing challenges in retaining employees. Meanwhile, Intel leverages apprenticeships to attract and retain diverse talent, boasting a 90% retention rate post-program.

"The market for employees in our industry is extremely competitive, and competitors for talent, particularly engineering talent, increasingly attempt to hire, and to varying degrees have been successful in hiring, our employees or employment candidates, including by establishing or expanding local offices near our headquarters in San Diego, California." --- (QCOM, sec filing, 2024/Q2)

"Apprenticeships are a way to attract diverse talent with greater-than-average retention, with 90% of apprentices staying with their employer after program completion." --- (INTC, press release, 2024/07/15)

Future Outlook and Predictions

AMD, TSM, and Intel foresee growth and strong demand in the semiconductor industry, despite acknowledging potential risks and uncertainties. AMD and TSM report positive financial outlooks, while Intel anticipates a shift in founder relationships impacting margins.

"expectations about future growth; the features, functionality, performance, availability, timing and expected benefits of future AMD products; and AMD's expected third quarter 2024 financial outlook, including revenue and non-GAAP gross margin, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995." --- (AMD, press release, 2024/07/30)

"C. C. Wei: Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook.We concluded our second quarter with revenue of U.S. dollar $20.8 billion, above our guidance in U.S. dollar terms." --- (TSM, earning call, 2024/Q2)

"So we do fully expect that those founder relationships, super important for us in the future, but they'll play a less critical or less substantial portion of the overall P and L as we go through the period.So peaking this year and next year and then moderating over time, But we've built into the margin assumptions for the product groups some continued use of external foundries." --- (INTC, event transcript, 2024/04/02)

"Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond AMD's control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements." --- (AMD, press release, 2024/04/30)