Financial reports for Q2 2022 are largely in, and LightCounting today published a research note summarizing the results and interpreting guidance across ICP, CSP, equipment, and components vendor market segments. Many equipment and components vendors continued to ride the wave of demand created by larger ICPs and telcos in Q2. Recession fears, the war in Europe, heightened tensions around Taiwan, COVID-19, supply chain, regulation, and inflation all remain challenges that could interrupt a smooth ride through 2022.
The results reported for Q2 were generally good, with a few exceptions, but some end customers, notably large ICPs, have frozen hiring and begun layoffs. This begs a key question for transceiver and component makers – will the recession fears of the ICPs spread to CSPs, and other enterprises? Will such fears deepen, and lead to more widespread workforce reductions, and cuts in capex as well as opex? Thus far, the companies we track have expressed support for continuing to invest in key infrastructure and fast-growing cloud services businesses. If this holds true, then components demand interruptions will be due to short-term inventory corrections, and not a longer-term market slowdown.
Our Research Note reports revenue guidance given during Q2 earnings calls, and the general pattern is for double-digit y-o-y growth in ICP sales (with some exceptions), and y-o-y single-digit growth in equipment company sales which is typical. Semiconductor makers are also mostly expecting double-digit growth, except for Intel, which has a high percentage of sales in consumer-related devices, and which is suffering share loss at major customers like Apple.
Taking a deeper look at ICP guidance, we calculated the average sequential growth rate for Q3/Q2 and compared to the guided growth rates for Q3/Q2 2022.
The data suggests that companies with large retail and consumer businesses (Amazon, Apple, eBay, Meta, PayPal) guided for lower-than-average growth in Q3, while those more concentrated in the cloud services area (Microsoft Cloud, Oracle) guided for above average growth in Q3. This makes sense given the impact of inflation on consumer spending and the resultant expectations that a recession is imminent or already underway.
The full 13-page Research Note is available to LightCounting clients now and provides detailed discussions of results in all market segments, as well as a table of guidance provided for Q3.
A complete compilation of Q2 results will be provided in our Quarterly Market Update, to be published in September 2022 after all companies have reported.