Semiconductors: Cycle check = Not bad :: Macquarie Research

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Semiconductors: Cycle check = Not bad
Event
 Our quick pulse check on the semiconductor cycle suggests a respectably
good situation. As the results season continues, we will issue further updates.
Impact
 We believe the chip sector YoY growth cycle is bottoming (see chart at left).
Macro-level uncertainty has heightened near-term inventory correction pains
upstream (e.g. at foundries and OSAT firms) as the supply-chain has buckled
down for the worst. Softness in microcontrollers (as reported by Freescale
and Microchip) has been another effect. But conditions further downstream
are holding up well enough to suggest that these pains will only be temporary.
 Indications like Apple’s strong results, solid indications from Intel and IBM on
corporate IT demand, and Canon Marketing Japan’s upward guidance
revision reassure us that end-demand is not collapsing. In Japan demand for
consumer electronics rose 24.8% YoY in June. On 21 July, the US National
Retail Federation released a survey result projecting a 12% YoY increase in
back-to-school spending on consumer electronics and computers.
 A step downstream from the foundries, key foundry customers like Altera and
Xilinx have posted good results and guidance, as highlighted by Macquarie
US analyst Shawn Webster. This suggests that while they may have curbed
orders to foundries to be cautious, within a few months restocking activity
should return, driving a recovery in foundry utilisation rates and visibility.
 Altera’s CY3Q guidance came in above market expectations, increasing 2-6%
QoQ on broad market growth, above Shawn’s previous estimate of up 1%
QoQ. Inventories fell 9% QoQ in CY2Q, while revenues rose 2% QoQ.
 Xilinx’s June quarter sales beat its expectations, up 5% QoQ, with new
product sales up 17% QoQ with strong demand for 40nm FPGA products.
Guidance for the September quarter (up 1% to down 3%) is in line with normal
seasonality. Inventories fell 6% QoQ in CY2Q, while revenues rose 5% QoQ.
 Qualcomm provided guidance that was better than expected; the Macquarie
estimate for the September quarter chip sales ex-Atheros is 4% QoQ, at the
low-end of normal seasonality, but generally resilient. We note Sandisk’s solid
results and raised full-year revenue guidance, AMD’s September guidance is
for 8-12% QoQ growth, above the previous Macquarie estimate of 8% and
Cypress reported 9% revenue growth at the top of its guidance range.
 The main sour note in CY2Q (unsurprisingly) has been the DRAM sector,
where Nanya and Powerchip saw a combined operating loss margin of 45%.
Outlook
 We are positive on the chip sector. We believe the cycle is bottoming now,
and despite near-term volatility, we believe attractive entry points for many
stocks are appearing. We are reassured by the healthy fundamentals of the
industry, including reasonable capex, continuing innovation, and presence of
supportive growth drivers e.g. in smartphones and tablets. For more analysis,
kindly refer to MacqTech Thematic – Semiconductors: At the cycle bottom (6
July 2011). Regionally, we would highlight Michael Liu’s reiteration of his
Outperform rating on TSMC and his Taiwan semiconductor sector update, as
well as Damian Thong’s upgrade of Rohm to Outperform from Neutral and
reiteration of an Outperform rating on Toshiba.