UBS’ Stephen Chin put out a thoughtful piece on WFR the other day (probably trying to make up for looking like an idiot on RBCN) that stopped short of a proper analysis. It smells of a client idea not fleshed out before publishing.

The good stuff first. He rightly reports that WFR’s Utsunomiya fab was shut down, and cleverly compares this building’s floor space as a percentage of WFR’s total floor space to total Japan sales, and concludes the Utsunomiya facility sells more outside of Japan than inside. Nicely done, I like it. I have no idea if it is true, but it sounds like it is heading in the right direction.

But then he takes the idea one step too far. He concludes that since management says “utilization rates…are high” that there is little spare capacity for the Korea and Taiwan facilities to mitigate the attendant sales decline, and that WFR could be losing ~$600k/day due to this closure.

OK, Bub, you had a great idea, but then you started walking away from the clear info toward a further conclusion addled by excess error potential. Here are the questions you need to answer to support your sales conclusion:

• actual utilization at Korea and Taiwan
• “excess utilization” possible at Korea and Taiwan
• effect of lost production at WFR, Sumco and Shin Etsu on industry inventory levels
• price increases attendant with likely rush orders for surviving facilities

I will offer one thing to counter his utilization idea. There are few groups of people out there begging harder for an opportunity to bust their ass working extra hours than the Koreans or Taiwanese. These folks will find ways to push those facilities harder than ever in search of overtime or that bonus. Expect glowing words from the WFR CEO on the next call about WFR employees in Korea and Taiwan stepping up to the challenge.

We all see in a month when the companies start reporting. Look for pre-announcements next week to see which sectors were affected more than others.

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