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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?

However, Linear did mention a few signs of softness. It reported that bookings were down from the previous quarter, and the book-to-bill ratio was marginally lower.

Paul Coghlan, Linear's chief financial officer, did report "a decline in the distribution booking, particularly in the United States." However, he said that the negative book-to-bill ratio was "close to parity and generally similar" to what the company experienced last year. "The slowdown of this quarter feels to us more seasonal than structural."

The CFO did acknowledge softness in global macro-economic conditions, calling them "although improved, not robust." He also referred to weakness in Europe in particular, with Ukraine being the big issue.

Financial analysts grilled Coghlan about why Linear seems to be less cautious, downplaying the weakened economy as "seasonal." The CFO responded: "We are cognizant" of the macro-economic issue, but "we didn't internally see as big an impact as we are hearing you folks are talking about." He also said, "We wanted to give you our guidance, not our guidance and then tempered dramatically by political environment."

Further, "our guidance is always reflected on our customers and their behaviours," Coghlan said. At this point, Linear isn't seeing anything out of the ordinary in that respect.

Some semiconductor industry analysts acknowledge the slowing growth in the chip market.

"We have been calling Q4 2014 as the peaking of the annualized growth for the semiconductor industry for over a year now," Dale Ford, vice president at IHS Technology, told us. "So we agree that growth will start to slow."

"However, we do not see a spiraling decline," Ford said. "Rather, our forecast calls for a softer decline."

Microchip's results "are more a reflection of the market where they participate and not the entire semiconductor industry," he said. "Yes, their method of accounting may give some visibility, but that is more specific to markets where they participate."

Forecast on the next quarter

During the call, Coghlan acknowledged that the current quarter presents "a challenge to our forecast." Revenue in the December quarter is typically down from the September quarter, slipping about 6 per cent in each of the past four years.

Based on this and the company's current bookings rate, Linear is forecasting this quarter's revenue to drop 3 per cent to 6 per cent from the previous quarter but rise four per cent to eight per cent from a year earlier.

Linear's business, also broad-based, is similar to Microchip's. Linear's two largest market segments are industrial (43 per cent) and automotive (19 per cent). Only 3 per cent of its business is generated by highly volatile, commodity consumer electronics products.

Like Microchip, Linear reports sales from distribution on a sell-through basis. Coghlan called the company's forecast conservative. He described its October orders as "similar in trend" to last year, despite minor cancellations. Europe remains on the watch, China is off a little, and Japan is reasonable, he said.

When asked about Microchip, Ford said the company is "aligned with our expectation of reaching the top of a cycle."

The semiconductor industry has always been cyclical, he said. "Our forecasts call for the cycle to continue into the future. [Microchip] uses the word [industry] 'correction.' I would say it is more accurate to call it a cycle" than a correction. "This is not a situation of bloated inventory or other industry misalignment. It is that natural trending of pricing, capacity, product life cycles, etc."

(With inputs from EE Times' Junko Yoshida)

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