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Analysts see IC market slowdown in 2H 08

Posted: 28 Aug 2008 ?? ?Print Version ?Bookmark and Share

Keywords:IC market? industry slowdown? TSMC forecast?

A bad sign for the industry? Investment banking firm Friedman Billings Ramsey & Co. Inc. (FBR) has cut both its Q3 and Q4 estimates for Taiwan Semiconductor Manufacturing Co. Ltd.

Mehdi Hosseini, an analyst with FBR, cut his forecast due to lower-than-expected demand from TSMC's foundry customers. It also means that the overall chip industry could be slowing in the 2H 08.

"Recent checks suggest to us that overall wafer shipments in Q3 could be up only 5 percent quarter-over-quarter, below previous expectations of up 7 percent to 8 percent quarter-over-quarter," he said in a report. "This is attributed to cuts in shipment by key/large customers from the communication (Marvell, Qualcomm, Texas Instruments), graphics, and consumer sectors."

There is more bad news. "Additionally, we believe that forecasts for Q4 wafer shipments have recently been cut, with customers from the consumer end markets (particularly game console, digital imaging, STB, DVD, FPD) and communications (Bluetooth) having the largest cutbacks," he said.

"Thus, we now expect Q4 wafer shipment to decline by as much as 8 percent to 10 percent quarter over quarter, below previous expectations of down 4 percent to 5 percent quarter over quarter," he said. "Our current read on Q1 09 wafer shipments suggests below seasonal shipment decline of 5 percent to 10 percent quarter-over-quarter, though we note that it is too early to make an accurate assessment of the Q1 09 demand environment."

FBR is cutting its calendar 2008 and 2009 revenue estimates from $11.726 billion and $12.447 billion, respectively, to $11.545 billion and $11.661 billion, respectively. Its EPS estimates have changed from $0.75 and $0.78 to $0.74 and $0.73.

TSMC reported consolidated revenue of NT$88.14 billion ($2.87 billion) for Q2, up a mere 0.8 percent from the previous period and up 17.6 percent a year ago.

Silicon foundry giant TSMC reported net income of NT$28.77 billion ($939 million) in the quarter. Year-on-year, Q2 net income increased 12.9 percent. On a sequential basis, Q2 results represent an increase of 2.2 percent in net income.

For Q3, revenue is expected to be between NT$90 billion ($2.93 billion) and NT$92 billion ($2.998 billion).

Taiwan foundry rival United Microelectronics Corp. (UMC) posted mixed results in Q2 and warned about the overall business climate in the third period. Chartered Semiconductor, Semiconductor Manufacturing International Corp. (SMIC) and other foundries are seeing similar patterns.

"Recent industry checks indicate to us that wafer shipments into solar customers improved from June to July, and that volume shipments in the first three weeks of August have already exceeded total shipments in July," according to the FBR analyst. "However, we also note that there has been incremental weakness in demand from the semiconductor industry over the past six weeks, particularly from foundries."

Marvell's wafer cut
There are mixed signals among TSMC's customer base, especially at chipmaker Marvell Technology Group Ltd. "Marvell has been cutting wafer shipments at both TSMC and SMIC," said Craig Berger, an analyst at FBR.

"For Marvell, we think fears of wafer cuts at foundries in Q3 is a 'head fake' and that prudent investors should realize that Q3 wafer production growth remains ahead of Street consensus revenue growth estimates," Berger added in a report.

Still, SMIC is making inroads at Marvellat the expense of TSMC. "We do believe that embedded in some of these cuts is an element of de-booking 'reserved' capacity that was booked in order to guard against any possible supply shortages in Q4," Berger said. "With supply now readily available, there is no need to 'reserve' capacity with the largest foundry customer. Apart from that, we do see production shifting over to SMIC, with Q3 wafer shipments set to grow about 15 percent sequentially. More production at SMIC also has positive gross margin implications, given that its wafer pricing is 10-20 percent lower than TSMC's wafer pricing."

"For FY Q2, recent checks suggest Marvell's Q2 revenues and EPS tracked ahead of Street estimates on strength in Ethernet switching, Wi-Fi, and possibly storage," he added.

On the PC front, there are mixed signs as well. "Inventory for Intel processors was up slightly while AMD's was down a bit at North American distribution over the past week. With most of Europe still on vacation, we heard that there is not much market activity for semi components," said Avi Cohen, head of research at Avian Securities, in a report.

China on a roll
But China's IC market is picking up again after a lull. "On the other hand, conversations with our contacts suggest that demand for components going into China is starting to pick up again now that the Olympics are over," he said.

"With the Chinese government putting limits on traffic into the country in August we are likely to see some companies reporting lumpier than usual monthly numbers for Q3. This is because some orders were pulled ahead into July while the rest was pushed out to September," he said.

"Taking a broad range of semi components, from what we heard shipments for July were stronger than seasonal, August is likely to be flattish, and the consensus is expecting growth in September," he said. "Given the lumpiness, we believe results for the month of September are going to be of greater importance this year in gauging end market demand."

- Mark LaPedus
EE Times

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