Semiconductors
Maintain underweight: The growing uncertainty about the global economy has continued to impact the industry with more downgrades to revenue guidance.
Chipmakers such as Altera, Lattice and Texas Instruments, key customers of local semicon players, further lowered their revenue guidance for 4Q11 to a 10% to 15% quarter-on-quarter (q-o-q) drop (from 5% to 10% q-o-q drop previously) citing persistent weaker than expected demand for broad-based applications save for the communication segment.
Given the weakening demand outlook for 4Q11, we understand that several major tech players (STMicroelectronics, TSMC and Fairchild) have suggested that the industry has reached the bottom. They believe that: (i) inventory adjustment is expected to be over and there are signs of a turnaround as orders have begun to improve for 1Q12; and (ii) the 2008/09 semicon downturn lasted for two quarters, hence, given that October 2011 global chip sales were the fourth month of year-on-year (y-o-y) contraction, this suggests that a recovery is poised to occur beginning 2012.
However, we prefer to remain cautious as the downturn could be longer than expected. We recall that during the industry downturn in 2001/02, global chip sales contracted for 10 consecutive months on a y-o-y basis. Thus, we believe the visibility beyond 4Q11 remains poor. Furthermore, consumer spending could be affected by austerity measures and cuts in government spending. Emphasising the weak outlook, both the World Semiconductor Statistics (WSTS) and Gartner have lowered 2012 growth projection for global chips sales to 2.6% and 2.2% (against 7.6% and 4.6%) respectively.
Upside risk to this view is a stronger than expected recovery in global chip sales.
The outlook remains cloudy as the uncertainty on the global economy continues to affect consumer and corporate spending. Spending cuts and austerity measures by various governments will not help in the industry’s recovery. On the other hand, recent retail data from the US during the Thanksgiving shopping season does suggest improving consumer spending. However, we remain cautious until we see stronger demand indicators. Thus, our “underweight” call on the sector remains unchanged. — RHB Research, Dec 27
This article appeared in The Edge Financial Daily, December 28, 2011.
Maintain underweight: The growing uncertainty about the global economy has continued to impact the industry with more downgrades to revenue guidance.
Chipmakers such as Altera, Lattice and Texas Instruments, key customers of local semicon players, further lowered their revenue guidance for 4Q11 to a 10% to 15% quarter-on-quarter (q-o-q) drop (from 5% to 10% q-o-q drop previously) citing persistent weaker than expected demand for broad-based applications save for the communication segment.
Given the weakening demand outlook for 4Q11, we understand that several major tech players (STMicroelectronics, TSMC and Fairchild) have suggested that the industry has reached the bottom. They believe that: (i) inventory adjustment is expected to be over and there are signs of a turnaround as orders have begun to improve for 1Q12; and (ii) the 2008/09 semicon downturn lasted for two quarters, hence, given that October 2011 global chip sales were the fourth month of year-on-year (y-o-y) contraction, this suggests that a recovery is poised to occur beginning 2012.
However, we prefer to remain cautious as the downturn could be longer than expected. We recall that during the industry downturn in 2001/02, global chip sales contracted for 10 consecutive months on a y-o-y basis. Thus, we believe the visibility beyond 4Q11 remains poor. Furthermore, consumer spending could be affected by austerity measures and cuts in government spending. Emphasising the weak outlook, both the World Semiconductor Statistics (WSTS) and Gartner have lowered 2012 growth projection for global chips sales to 2.6% and 2.2% (against 7.6% and 4.6%) respectively.
Upside risk to this view is a stronger than expected recovery in global chip sales.
The outlook remains cloudy as the uncertainty on the global economy continues to affect consumer and corporate spending. Spending cuts and austerity measures by various governments will not help in the industry’s recovery. On the other hand, recent retail data from the US during the Thanksgiving shopping season does suggest improving consumer spending. However, we remain cautious until we see stronger demand indicators. Thus, our “underweight” call on the sector remains unchanged. — RHB Research, Dec 27
This article appeared in The Edge Financial Daily, December 28, 2011.
