Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asia On The Ground: Asia Tech Strategy
Japan supply chain update: The Known
Unknowns Part 2
Assessing what could be the main risks post the Japan earthquake
Investors have been wrestling with the impact of the Japan earthquake on the tech
supply chain. We pull together the findings from our Japan Tech Research Team
and our most recent channel checks. Our conclusion remains that the impact is hard
to precisely quantify but will be material.
Several possible bottlenecks in 2Q11; watch out silicon wafers in 3Q
Memory prices are already reacting to possible aggravated supply conditions. Later
in 2Q, we could see several semis parts finding their way into PCs causing supply
issues (HDD, ODD ICs/PMUs), and some specific cellphone components (image
sensors, power amplifiers). By 3Q, we believe silicon wafers could be a real issue
for the industry, as Shin-Etsu is still not providing progress reports. We also
continue to watch the supply of H202 and CMP Slurry for semis, NF3 gas for LCD.
Uneven path likely; use selectively to pick up tech stocks
Pre the earthquake, we believe non-memory semis faced ramping inventory days
and end demand was soft in many places. Hence, we recommend to only
selectively use potential Japan-related stock weakness to come back in. Memory is
the sole sector where the +ves (pricing) could more than offset –ves (volumes).
Within cautious stance, we prefer Memory, LCD and Wireless
Most Preferred stocks: Catcher, HTC, Lenovo, LGD, Samsung and TPK; Least
Preferred: ASMPT, Compal, FIH, HCL, LG Innotek and SPIL
Investment Summary
A month after the earthquake, we believe that the impact it is having on the
global tech hardware and semis supply chain is becoming clearer in parts, but
not all. We recap in this report (1) key “red spots” where we need to monitor
progress reports in the next few months; (2) detailed progress reports on various
sites and how they filter through the global tech supply chain. Note that on April
11th, UBS Japan Tech Research team published a detailed report on the
aftermaths of the earthquake on the Japan tech sector: “Technology Sector
Update: Still see cyclical bottom; buy on weakness”; Fumihide Goto and Team.
We encourage you to refer to it for more details. See also UBS relevant Japanese
analysts for the key sectors.
At this point in time, some key issues remain as far as some of the damaged sites
are concerned within the impacted area. Those sites include silicon wafers, key
chemicals for semis device manufacturing, ICs (primarily PC supply chain
+ image sensors), and some specific components.
In addition, the possibility of electricity shortage remains, notably by the
summer, according to UBS Japan utility research team. Projected TEPCO’s
power supply shortfall in July is 10% to 20% of forecasted demand. In order to
address this, the regulators had planned to enforce up to 25% power cuts in
industrial areas. Should such cuts not be fully enforced, we would view as a
positive catalyst for tech stocks.
Assuming, for now, that some power disruption occurs, when could supply
bottlenecks hit tech hardware manufacturing? NAND Flash will likely be one of
the first segments to feel the impact, as power cuts at Toshiba/SanDisk on
March 8th/11th will effectively impact die output by May. HDD, ODD and PC
power management ICs could be bottlenecks for PC build rates into the second
half of 2Q11, as well as some specific handsets components. Silicon wafers
tightness or possible shortage could be, in our view, a dominant issue as of
3Q11 once inventories at hand are worked through and considering semis
manufacturing cycles (c. 30-80 days depending upon device and including back
end).
Thereafter, assuming normal power, we could see inventory re-build following
through by 4Q11. However, this is making the (strong) assumption that all was
well beforehand. Our view is that (1) end demand had been trending weaker
than expected, primarily for PCs, but also in other segments: TVs, STB, some
networking devices, connectivity, feature and entry phones, non-Apple tablets.
(2) Non-memory semis inventory days have likely trended higher in 1Q11,
whilst the disconnect between OEM and semis revs increased – this paves the
way for some degree of inventory correction, that semis bottlenecks would only
mitigate at best, and delay at worst. Hence, we still see significant earnings
downside risks, within our Asia Tech coverage, for several PC OEM/ODM,
EMS and non-memory semis (more so OSAT and fabless than foundries)
companies.
That being said, we would treat any miss vs. expectations triggered in part
from Japan bottlenecks as potential buying opportunities for our preferred
stocks / segments pre Japan. Those include at this point our Asia Tech Most
Preferred list: Catcher, HTC, Lenovo, LGD, Samsung and TPK. Within our
cautious stance on Asia Tech, we continue to be O/W Memory, LCD and
Wireless.
Shorter term, it is also worth noting that memory stocks are potential
beneficiaries of current supply concerns. PC DRAM contract prices are up c. 9%
since the earthquake, and NAND prices we believe will trend up further in April
as checks point to continuing nervousness (with card makers buying in
anticipation of embedded demand sucking in capacity). Our preferred play in
Asia remains Samsung.
Semis cap equipment
Tokyo Electron had two sites impacted initially. The Nirasaki site has resumed
production of furnaces. The Miyagi site, where c. 80% of production of etchers
was concentrated, is scheduled to rescheduled production by end of April / early
May. As production of dielectric etchers in particular was switched to another
site, the company does not anticipate any major disruption. Note that TEL’s
share of 28nm dielectric etchers for TSMC is fairly high – UBS Japan SPE
analyst Yamamoto-san estimating >70%. One remaining issue though is how
TEL’s supply chain recovers, with the company estimating some uncertainty is
present for c. 10% of their 600 primary suppliers.
In litho, one potential issue is CaF2 which is used in litho lenses in some varying
percentage. Growing CaF2 requires uninterrupted electricity supply during an
extended period of time. For now, ASML indicates that this is not likely to be an
issue. Note that one private Japanese company – Niho Keisho Kogaku – has a
high share.
LCD: improving but no green light yet
In TFT-LCD sector, we expect no significant long-term impact from Japan
earthquake. Currently TFT-LCD supply chain is experiencing supply disruptions
in some components/materials such as ACF, ITO target, CF pigment and NF3
gas, caused by operation suspensions from the earthquake and power disruptions.
However we believe the supply disruptions to be short-lived given 1) most
component makers have already restarted or plan to restart in the near future; 2)
panel makers currently carry inventory levels for 1~2 months; and 3) panel
makers are trying to shift orders to suppliers outside of Japan. Nevertheless,
recently reported shutdown of Sharp's G8/10 lines due to potential shortage of
NF3 gas from Kanto Denka Kyogo has raised some concerns for other panel
makers. But, given that OCI materials and Air Product account for vast majority
of NF3 supply, we do not believe that Korean and Taiwanese panel makers will
face much of supply disruptions.
What remains uncertain is the impact of supply disruption in equipment vendors
such as Nikon, particularly for LTPS/AM-OLED and new Gen 8 lines. We think
this could potentially have a bigger impact since there are no viable substitutes.
PC supply chain: Semis could be a bottleneck
Any of the aforementioned bottlenecks are relevant for hardware manufacturers.
In addition, we note several areas which have recently raised concerns:
Hard disk drive ICs: UBS analyst Goto-san notes that the HDD-related
Japan supply chain is concerned about availability of dedicated ICs (motor
drive ICs, pre-amp) from both Texas Instruments from the Miho fab, and
from Renesas’ Naka site. Jonah Cheng notes that Texas Instruments has
placed incremental orders at UMC to make up for part of the shortfall, and
Texas Instruments can shift production internally to Dallas – but this will
altogether take a few months. Note that Texas Instruments has noted that the
Miho fab (c. 10% of its total output) will likely recover full production by
early July. Goto-san expects the main negative impact to be focused on
Hitachi Global Storage Tech (primarily enterprise) – but this is potentially an
issue for the overall PC supply chain to some degree.
Optical disk drive ICs: Jonah sees possible bottlenecks within the supply
chain coming from Sanyo and Renesas, filtering through Hitachi LG,
Toshiba Samsung and Philips Lite-on.
Power management ICs: Patrick Chen notes that a major ODM has
expressed concerns over the availability of Texas Instruments’ power
management ICs for notebook PCs. Designing in replacements (e.g Maxim,
Intersil) is in process but will take time.
DRAM: We were already expecting DRAM undersupply in 3Q11 and 4Q11.
Clearly, the silicon wafer situation aforementioned is aggravating risks
August onwards in our view.
Mobile phones & tablet PCs: BT resin issue
easing, others remain
One issue which initially dominated the Japan-related news was BT resin, used
in IC substrates for several FC-CSP packages used, in turn, by some of the key
smartphone IC solutions (notably Qualcomm’s higher end integrated
baseband/application processors; some of Nvidia’s Tegra 2; Apple A5
processor). As well publicised though, Mitsubishi Glass Chem believes it can
reach pre-earthquake levels by early May. Considering (1) substrate inventories;
(2) IC channel stock buffers; (3) use of alternative BT resin sources and in some
case replacement materials; the issue is still material, but also manageable in our
view.
Outside of this, we see several possible issues. For the Apple supply chain, it is
possible that an alternative to Sony image sensors (possibly Omnivision) for the
coming iPhone 5. UBS Apple analyst Maynard Um continues to see June as the
likely timing of shipment of the iPhone 5. For the Nokia supply chain, possible
issues include Toshiba’s camera module operations, and Renesas’ power
amplifiers. Lastly, NAND Flash supply will inherently stay tight throughout
2Q11 and likely in 3Q11, aggravated by Toshiba/SanDisk’s loss of supply into
2CQ11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asia On The Ground: Asia Tech Strategy
Japan supply chain update: The Known
Unknowns Part 2
Assessing what could be the main risks post the Japan earthquake
Investors have been wrestling with the impact of the Japan earthquake on the tech
supply chain. We pull together the findings from our Japan Tech Research Team
and our most recent channel checks. Our conclusion remains that the impact is hard
to precisely quantify but will be material.
Several possible bottlenecks in 2Q11; watch out silicon wafers in 3Q
Memory prices are already reacting to possible aggravated supply conditions. Later
in 2Q, we could see several semis parts finding their way into PCs causing supply
issues (HDD, ODD ICs/PMUs), and some specific cellphone components (image
sensors, power amplifiers). By 3Q, we believe silicon wafers could be a real issue
for the industry, as Shin-Etsu is still not providing progress reports. We also
continue to watch the supply of H202 and CMP Slurry for semis, NF3 gas for LCD.
Uneven path likely; use selectively to pick up tech stocks
Pre the earthquake, we believe non-memory semis faced ramping inventory days
and end demand was soft in many places. Hence, we recommend to only
selectively use potential Japan-related stock weakness to come back in. Memory is
the sole sector where the +ves (pricing) could more than offset –ves (volumes).
Within cautious stance, we prefer Memory, LCD and Wireless
Most Preferred stocks: Catcher, HTC, Lenovo, LGD, Samsung and TPK; Least
Preferred: ASMPT, Compal, FIH, HCL, LG Innotek and SPIL
Investment Summary
A month after the earthquake, we believe that the impact it is having on the
global tech hardware and semis supply chain is becoming clearer in parts, but
not all. We recap in this report (1) key “red spots” where we need to monitor
progress reports in the next few months; (2) detailed progress reports on various
sites and how they filter through the global tech supply chain. Note that on April
11th, UBS Japan Tech Research team published a detailed report on the
aftermaths of the earthquake on the Japan tech sector: “Technology Sector
Update: Still see cyclical bottom; buy on weakness”; Fumihide Goto and Team.
We encourage you to refer to it for more details. See also UBS relevant Japanese
analysts for the key sectors.
At this point in time, some key issues remain as far as some of the damaged sites
are concerned within the impacted area. Those sites include silicon wafers, key
chemicals for semis device manufacturing, ICs (primarily PC supply chain
+ image sensors), and some specific components.
In addition, the possibility of electricity shortage remains, notably by the
summer, according to UBS Japan utility research team. Projected TEPCO’s
power supply shortfall in July is 10% to 20% of forecasted demand. In order to
address this, the regulators had planned to enforce up to 25% power cuts in
industrial areas. Should such cuts not be fully enforced, we would view as a
positive catalyst for tech stocks.
Assuming, for now, that some power disruption occurs, when could supply
bottlenecks hit tech hardware manufacturing? NAND Flash will likely be one of
the first segments to feel the impact, as power cuts at Toshiba/SanDisk on
March 8th/11th will effectively impact die output by May. HDD, ODD and PC
power management ICs could be bottlenecks for PC build rates into the second
half of 2Q11, as well as some specific handsets components. Silicon wafers
tightness or possible shortage could be, in our view, a dominant issue as of
3Q11 once inventories at hand are worked through and considering semis
manufacturing cycles (c. 30-80 days depending upon device and including back
end).
Thereafter, assuming normal power, we could see inventory re-build following
through by 4Q11. However, this is making the (strong) assumption that all was
well beforehand. Our view is that (1) end demand had been trending weaker
than expected, primarily for PCs, but also in other segments: TVs, STB, some
networking devices, connectivity, feature and entry phones, non-Apple tablets.
(2) Non-memory semis inventory days have likely trended higher in 1Q11,
whilst the disconnect between OEM and semis revs increased – this paves the
way for some degree of inventory correction, that semis bottlenecks would only
mitigate at best, and delay at worst. Hence, we still see significant earnings
downside risks, within our Asia Tech coverage, for several PC OEM/ODM,
EMS and non-memory semis (more so OSAT and fabless than foundries)
companies.
That being said, we would treat any miss vs. expectations triggered in part
from Japan bottlenecks as potential buying opportunities for our preferred
stocks / segments pre Japan. Those include at this point our Asia Tech Most
Preferred list: Catcher, HTC, Lenovo, LGD, Samsung and TPK. Within our
cautious stance on Asia Tech, we continue to be O/W Memory, LCD and
Wireless.
Shorter term, it is also worth noting that memory stocks are potential
beneficiaries of current supply concerns. PC DRAM contract prices are up c. 9%
since the earthquake, and NAND prices we believe will trend up further in April
as checks point to continuing nervousness (with card makers buying in
anticipation of embedded demand sucking in capacity). Our preferred play in
Asia remains Samsung.
Semis cap equipment
Tokyo Electron had two sites impacted initially. The Nirasaki site has resumed
production of furnaces. The Miyagi site, where c. 80% of production of etchers
was concentrated, is scheduled to rescheduled production by end of April / early
May. As production of dielectric etchers in particular was switched to another
site, the company does not anticipate any major disruption. Note that TEL’s
share of 28nm dielectric etchers for TSMC is fairly high – UBS Japan SPE
analyst Yamamoto-san estimating >70%. One remaining issue though is how
TEL’s supply chain recovers, with the company estimating some uncertainty is
present for c. 10% of their 600 primary suppliers.
In litho, one potential issue is CaF2 which is used in litho lenses in some varying
percentage. Growing CaF2 requires uninterrupted electricity supply during an
extended period of time. For now, ASML indicates that this is not likely to be an
issue. Note that one private Japanese company – Niho Keisho Kogaku – has a
high share.
LCD: improving but no green light yet
In TFT-LCD sector, we expect no significant long-term impact from Japan
earthquake. Currently TFT-LCD supply chain is experiencing supply disruptions
in some components/materials such as ACF, ITO target, CF pigment and NF3
gas, caused by operation suspensions from the earthquake and power disruptions.
However we believe the supply disruptions to be short-lived given 1) most
component makers have already restarted or plan to restart in the near future; 2)
panel makers currently carry inventory levels for 1~2 months; and 3) panel
makers are trying to shift orders to suppliers outside of Japan. Nevertheless,
recently reported shutdown of Sharp's G8/10 lines due to potential shortage of
NF3 gas from Kanto Denka Kyogo has raised some concerns for other panel
makers. But, given that OCI materials and Air Product account for vast majority
of NF3 supply, we do not believe that Korean and Taiwanese panel makers will
face much of supply disruptions.
What remains uncertain is the impact of supply disruption in equipment vendors
such as Nikon, particularly for LTPS/AM-OLED and new Gen 8 lines. We think
this could potentially have a bigger impact since there are no viable substitutes.
PC supply chain: Semis could be a bottleneck
Any of the aforementioned bottlenecks are relevant for hardware manufacturers.
In addition, we note several areas which have recently raised concerns:
Hard disk drive ICs: UBS analyst Goto-san notes that the HDD-related
Japan supply chain is concerned about availability of dedicated ICs (motor
drive ICs, pre-amp) from both Texas Instruments from the Miho fab, and
from Renesas’ Naka site. Jonah Cheng notes that Texas Instruments has
placed incremental orders at UMC to make up for part of the shortfall, and
Texas Instruments can shift production internally to Dallas – but this will
altogether take a few months. Note that Texas Instruments has noted that the
Miho fab (c. 10% of its total output) will likely recover full production by
early July. Goto-san expects the main negative impact to be focused on
Hitachi Global Storage Tech (primarily enterprise) – but this is potentially an
issue for the overall PC supply chain to some degree.
Optical disk drive ICs: Jonah sees possible bottlenecks within the supply
chain coming from Sanyo and Renesas, filtering through Hitachi LG,
Toshiba Samsung and Philips Lite-on.
Power management ICs: Patrick Chen notes that a major ODM has
expressed concerns over the availability of Texas Instruments’ power
management ICs for notebook PCs. Designing in replacements (e.g Maxim,
Intersil) is in process but will take time.
DRAM: We were already expecting DRAM undersupply in 3Q11 and 4Q11.
Clearly, the silicon wafer situation aforementioned is aggravating risks
August onwards in our view.
Mobile phones & tablet PCs: BT resin issue
easing, others remain
One issue which initially dominated the Japan-related news was BT resin, used
in IC substrates for several FC-CSP packages used, in turn, by some of the key
smartphone IC solutions (notably Qualcomm’s higher end integrated
baseband/application processors; some of Nvidia’s Tegra 2; Apple A5
processor). As well publicised though, Mitsubishi Glass Chem believes it can
reach pre-earthquake levels by early May. Considering (1) substrate inventories;
(2) IC channel stock buffers; (3) use of alternative BT resin sources and in some
case replacement materials; the issue is still material, but also manageable in our
view.
Outside of this, we see several possible issues. For the Apple supply chain, it is
possible that an alternative to Sony image sensors (possibly Omnivision) for the
coming iPhone 5. UBS Apple analyst Maynard Um continues to see June as the
likely timing of shipment of the iPhone 5. For the Nokia supply chain, possible
issues include Toshiba’s camera module operations, and Renesas’ power
amplifiers. Lastly, NAND Flash supply will inherently stay tight throughout
2Q11 and likely in 3Q11, aggravated by Toshiba/SanDisk’s loss of supply into
2CQ11.
No comments:
Post a Comment