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APAC semiconductor sales improve amid downturn fears

Posted: 16 Oct 2014 ?? ?Print Version ?Bookmark and Share

Keywords:revenue? Microchip? industry correction?

Either Microchip's downward revenue forecast was a negative bellwether for the entire semiconductor market or it foreshadowed a macro-economic weakness that bodes ill for the industry. Such notwithstanding, the monthly sales numbers compiled by the World Semiconductor Trade Statistics (WSTS) for the Asia Pacific region suggest nothing out of the ordinary that might signal an emerging industry correction predicted by Microchip CEO Steve Sanghi.

The region's sales of semiconductors reached $16.7 billion for the month of August 2014, an increase of 9.4 per cent from the August 2013 total of $14.8 billion and an uptick of 1.7 per cent over the July 2014 total of $16.4 billion.

Avago Technologies LimitedSingapore-based designer, developer and global supplier of a of analogue, digital, mixed signal and optoelectronics components and sub-systemsrecorded improved revenues for its third fiscal quarter of 2014. Its net revenue reached $1,269 million, an increase of 81 per cent over the previous quarter and up by 97 per cent from the same quarter last year. It also provided a positive outlook for its fourth fiscal quarter, expecting sequential revenue growth between 18 per cent and 22 per cent.

"The global semiconductor market continued to demonstrate broad and sustained strength in August, and sales remain well ahead of last year's pace," said Brian Toohey, president and CEO, Semiconductor Industry Association. "Demand is strong across nearly all semiconductor product categories, and the industry has now posted sequential monthly growth for six consecutive months."

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To rattle or not to rattle

Microchip Technology predicted weakened revenues for its September quarter, which, according to the chipmaker, paints a picture of a wider slowdown in the semiconductor industry. Whereas the alert triggered a sell-off in the stock market, analysts are in two minds about whether an "industry correction" has indeed begun.

CEO Steve Sanghi said Microchip can see the turn of the industry much sooner than other semiconductor companies for two reasons. First, the company reports sales from distribution on a sell-through basis worldwide. Second and more importantly, the company does business with more than 80,000 customers in fields as diverse as automotive braking systems, industrial machines, thermostats, portable computers and garage-door openers. (Read the story here: Microchip's projection spooks investors, puzzles analysts)

Craig Berger with Hedgeye backed Microchip's claim of seeing early warning signs of the semiconductor market better than others. He wrote, "Historically, Microchip has been an early semiconductor cycle indicator, with its sell-through revenue recognition helping the firm see a turn in distributor demand dynamics earlier than a sell-in chip firm that can keep shipping inventory."

On the other hand, there are also some who wouldn't buy the claim, like Seeking Alpha's Russ Fischer. He said:

In the early days of the semiconductor business "disti stuffing" was a common practice to manage quarterly sales and earnings. That practice has been discredited since the mid-1970s. No supplier that I know of accounts for sales to distribution as real sales. Only when the distributor sells the parts are they included in the manufacturers' sales numbers. It is hard to believe [Microchip's CEO] doesn't know and understand this industry practice.

Correction or cycle?

Over at Silicon Valley, Intel Corp. and Linear Technology both stressed during their earnings calls this week that they see nothing out of the ordinary that might signal an emerging industry correction predicted by Microchip CEO Steve Sanghi.

With $371.1 million in revenue, Linear reported 9 per cent growth in its business from a year earlier. The company also increased its net income 20 per cent to $129.5 billion. Linear's revenue increased from the previous quarter, though just by 1.5 per cent. The company's net income decreased by $0.3 million.

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