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April 02, 2012 at 18:00 PM EDT
Semis: Any Way You Slice It, Street Sees Recovery in SIA Data
A number of Street prognosticators wrote in today with their views on the semiconductor industry following the release of data for the month of February by the trade group The Semiconductor Industry Association (SIA). That data showed that revenue of $17.2 billion for the industry, excluding memory chips, was flat, year over year, though each [...]

A number of Street prognosticators wrote in today with their views on the semiconductor industry following the release of data for the month of February by the trade group The Semiconductor Industry Association (SIA).

That data showed that revenue of $17.2 billion for the industry, excluding memory chips, was flat, year over year, though each subsegment’s revenue accelerated in the three-month period ending in February.

Logic IC revenue of $5.9 billion was up 3%, year over year, an improvement from the 12% decline reported in the January period. Microprocessor revenue of $2.7 billion was down 3%, year over year, an improvement from the 15% decline in January.

Analysts are inclined to see in the data confirmation of a rebound in the semi industry, regardless of the individual data points:

Uche Orji, UBS Securities: Writes that with the Philadelphia Semiconductor Index up 20% this year, there is still upside in the group. PC chip makers should be helped by an improving disk-drive situation, he writes. And companies serving the smartphone market should benefit from sales of “apps processors,” connectivity chips, power amplifiers, NAND flash chips, and touch controllers. His top picks are Intel (INTC), Advanced Micro Devices (AMD), and Micron Technology (MU). He cut his rating on Texas Instruments (TXN) and Linear Technology (LLTC) to Neutral, whose valuations he believes have become excessive.

Betsy Van Hees, Wedbush: Writes that the industry’s “recovery has begun,” given that the SIA data show total revenue of $21.7 billion was up 1% from the prior-month period, and above a five-year average of a 3% month-to-month decline. What’s more, “February revenue from the Americas, Japan, and Asia Pacific M/M performed above historical seasonal levels.”

Stacy Rasgon, Bernstein Research: Like Van Hees, Also notes that the 1% month-to-month increase was better than average. However, Rasgon notes that AMD is no longer participating in the statistics gathering, and Intel has said it will withdraw going forward, “meaning the micro-processor unit (MPU) category of the WSTS Bluebook is now inherently less reliable unless a solution can be found (although WSTS continues to provide estimates).” Rasgon sees Intel facing “an uphill battle” with its mobile “Atom” chips. He considers AMD a worthwhile bet for share price appreciation later this year, though it’s a risky bet at that. Rasgon likes TI’s chances in analog semiconductors, and thinks Analog Devices (ADI) has good prospects, as it suffered less than peers during the downturn.

Doug Freedman, RBC Capital Markets: Notes that DRAM and flash memory chip revenue was up 13%, and 12%, respectively. “DRAM pricing appreciation has been well-documented as a result of expectation of industry supply consolidation,” writes Freedman. “Flash Memory’s impact is likely more related to a mix of higher density units as pricing through Q1 has been under pressure. Going forward, we expect NAND pricing declines to subside on upcoming demand drivers and rational supply. In DRAM, expect benign pricing environment in the near-term before getting clarity on the fate of Elpida assets.”

Jonathan Pitzer, Credit Suisse: Appears to be looking at a totally different set of historical data from Van Hees and Rasgon, as he writes that the 1% month-to-month increase was below the average 2.3% month-to-month growth. But it’s still possible that a seasonal March could bring a total Q1 decline of only 1.2%, he thinks, which would be better than current Street estimates for a 5.4% decline. Hence, he’s inclined to be bullish: “After spending two weeks in Asia conducting supply chain analysis, we remain confident in our industry view that we are on the cusp of a more meaningful upturn than is currently discounted in Semi estimates and believe we could see high single digit rev growth in C2Q vs. Street expectations for +5.5%.”

Fin

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