Semiconductors: 3MMA world semis sales up 8.6% YoY in March; :: Macquarie Research,

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Semiconductors: 3MMA world semis sales
up 8.6% YoY in March; bottom in sight
Event
 According to WSTS data released on 2 May, 3-month moving average
(3MMA) world semiconductor sales increased 8.6% YoY (+2% MoM) to
US$25.3bn in March. As expected, the pace of growth decelerated from a
downwardly restated 11.1% growth (previously +13.6% YoY) in February.
 We continue to expect a bottoming of the YoY rate of change in CY2Q (likely
in May, at ~2%). We expect the growth rate to accelerate thereafter, at least
to end-CY11. This should provide a tailwind for semiconductor sector shares.
 Along with Macquarie US analyst Shawn Webster, we are maintaining our
10% YoY semiconductor industry sales growth forecast for CY11.

Impact
 3MMA worldwide semiconductor sales of US$25.3bn in March were
higher than our estimate of US$24.5bn. This indicates little impact in March
to semiconductor sales from the 11 March Tohoku-Kanto earthquake in Japan.
With the March figure, 1Q CY11 worldwide semiconductor sales were flat
QoQ at US$75.8bn – the second highest quarterly revenue figure on record
(the highest was US$78.6bn in 3Q CY10). We present more analysis in this
report. NAND flash and microprocessors were key areas of strength in CY1Q.
 In line with seasonality in March. MoM growth in 3MMA units was +3.4%,
comparable with the 10-year median of 2.8% and mean of 3.4%. MoM growth
in 3MMA sales of 2.5% was also comparable with the 10-year mean of 2.4%.
 DRAM a drag: As expected, 3MMA DRAM sales fell 12% YoY to US$2.7bn
(+3% MoM), despite a 57% YoY increase in bit shipments. In contrast, 3MMA
NAND flash sales rose 28% YoY (7% MoM) to US$2.1bn
 Chip sector capex outlook: Chip sector capex plans look to be unchangedto-
better overall. If SPE supply-chain disruption can be avoided, our 15-20%
SPE sales growth estimate should be attainable – well supported for e.g. by
Intel’s surprise 13% capex hike to US$10.2bn. The leading chipmakers look to
be committed to their process migration plans and fab capacity investments.
Macquarie’s Daniel Kim has indicated that Samsung may raise its capex
budget for system LSI and NAND flash depending on market conditions.
Outlook
 We believe conditions are favourable for further upside to chip sector
stocks. We expect the chip industry growth deceleration to end in CY2Q, and
growth should accelerate in CY2H. Chip inventory adjustments look set to be
completed, and CY3Q should bring seasonal strength in demand. Moreover,
market expectations vis-à-vis the chip industry may have been curbed in the
aftermath of the Japan earthquake. The recovery in DRAM pricing is a
positive indicator in our view. We are broadly positive, but would note Daniel
Kim’s recent target price increase for Hynix Semiconductor (000660 KS,
Won33,800, Outperform, TP: Won42,000); Damian Thong’s positive view on
Elpida Memory (6665 JP, ¥1,202, Outperform, TP: ¥1,680), which is on the
Macquarie MarQuee Buy list; and Michael Liu’s Outperform rating on
Powertech (6239 TT, NT$104.00, Outperform, TP: NT$131.00).