67 WALL STREET, New York – September 16, 2009 – The Wall Street Transcript has just published its Semiconductors, Semiconductor Equipment, and Software Report offering a timely review of the sector to serious investors and industry executives. This 115 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: DRAM Industry Reorganization — Semiconductor Supply Chain Status — Netbook Growth — LCD TV Growth — NAND Pricing and Demand — Micro-Electro-Mechanical Systems (MEMS) Demand Cycle — Ultra Low Voltage Processors — Semiconductor Inventory Aging and Type — Processor Power Developments
Companies include: Intel (INTC); Micron Technology (MU); Microsemi (MSCC); STEC, Inc. (STEC); National Semiconductor (NSM); Texas Instruments (TXN); Taiwan Semiconductor Manufacturing (TSM); ON Semiconductor (ONNN); Intersil (ISIL); Linear Technology Corporation (LLTC); Monolithic Power Systems (MPWR);Advanced Photonix (API); Waytronx Inc. (WYNX); LTX-Credence (LTXC); Mattson Technology Inc. (MTSN); Oclaro, Inc. (OCLR); Silicon Laboratories (SLAB); Microchip Technology, Inc. (MCHP); Cohu, Inc. (COHU); FSI International, Inc. (FSII); Jaco Electronics (JACO); Cadence Design Systems (CDNS); Synopsys (SNPS); Mentor Graphics (MENT); Magma Design Automation (LAVA)
In the following brief excerpt from the 115 page report, Auguste Richard discusses the outlook for the sector and for investors.
TWST: As we look out a little further, is there anything on the horizon in terms of new technologies that are going to help drive this, besides some of the things we talked about, 4G and netbooks?
Mr. Richard: Again, I think that the big drivers coming up are going to be these netbooks. That’s going to enable the next 0.5 billion to 1 billion users on the Internet. I actually think that that in and of itself is going to be a tectonic shift; you’re talking about a sixth to a twelfth of the global population all of a sudden will have access to the Internet. I mean, that’s a big shift. The second one is video, which I mentioned. Basically it’s just the onward progression of video. Forty years ago you had a choice of three broadcast channels, and then the cable companies came along and you had a multiplicity of channels. Then you got a VCR and you could record it and watch a TV program when you wanted, and then you had a PVR and you could get rid of the commercials. And then the Internet came along and you could watch whatever you wanted whenever you wanted, you just couldn’t watch it on the TV, or the cell phone, per se. The next iteration of this is, one can watch any video on any screen any time and anywhere. This will eat up a lot of bandwidth and there is always a need for more resolution and higher frame rates, which is more bandwidth. Or you can compress more, which is more microprocessor power. Or you can store it locally, which is a lot of storage. So the three vectors of semiconductors – microprocessor power, bandwidth and storage – all can potentially benefit depending on how this rolls out. It’s good for everybody virtually; it’s just a very strong cycle, and it makes a lot of sense. It will consume a lot of silicon. The buildout of 3G networks, I think again, is a big one. Those are the ones that are obvious to me. There is also a PC upgrade cycle looming. In the old days when you looked at the fleet of cars in America, when the average age of the fleet got over I think it was 11 or 12 years, you knew you were going to have stronger sales of cars, and I think PCs are similar. Once they get to a certain age you just have to replace them.
TWST: Is the industry poised or able to handle a deferral if things don’t shape up?
Mr. Richard: I’ve seen more bankruptcies in cap equipment in the last six months than I’ve seen in the last 25 years. To be sure, the industry is going to look a lot different coming out of this downturn. And I think in some sectors of semiconductors the bigger are going to get much bigger and the small are going to dry up and blow away. You’re seeing that consolidation in memory. You’ve had Qimonda go into bankruptcy, you’ve had Spansion go into bankruptcy and the Taiwanese suppliers are definitely having problems. That probably means more market share for Hynix, Samsung and Micron. On the foundry side of things, Samsung is getting into the foundry business. I think Taiwan Semi (TSM) has some issues with their process roadmap and could lose market share. So there is going to be a pretty good shifting of market share, and I think, again, in some of the sectors, memory in particular, you can get a consolidation in cap equipment purchasing. That’s already pretty well consolidated, but some of the smaller suppliers could go bankrupt.
TWST: Is it going to be consolidation through bankruptcy or are we going to see some M&A activity as well?
Mr. Richard: You’ve already started to see some of both.
TWST: Are investors going to get blindsided if we get a downturn in the second half of the year?
Mr. Richard: I think so. That’s the call we’ve been making. We’re kind of contrarian in our view. So I think, particularly given where the stocks are, that they could pull back. The SOX (the Philadelphia Semiconductor Index) is over 300. You easily could correct 50 points and that would be normal in a rising semiconductor market. I think it’s actually probable; it is the call we have been making since mid-July.
TWST: What names would you be looking at?
Mr. Richard: The first of the ones that make the most sense to me is Altera (ALTR). 80% of revenue is from industrial and communication infrastructure. The stock has been held back on fear of a pause in China; that’s baked into the stock. It’s lagged the group and we think that they are well positioned coming out of this as more money goes into these sectors. The competitive technology is ASIC. In this downturn, most of the customers have fired the design groups and increasingly people will have to use FPGAs to differentiate their products, custom products. So that would be one of my best ideas near term.
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Another indication of the improving conditions for both the semiconductor and equipment companies is how much the chip companies are willing to spend on state-of-the-art equipment to make their newest products.
The largest sector in the semiconductor equipment market is lithography, and revenue for 2008 reached $5.4 billion, according to our analysis. Advanced immersion 193nm tools that are capable of making the most advanced circuits today can cost tens of millions of dollars each.
The market leader, ASML(ASML Quote), announced in the second quarter that the average selling price for its new systems was 31.1 million euros, or roughly $45 million. ASML noted it sold four new immersion systems. Looking deeper, ASML noted in its 6-K to the SEC that “in Q2 2009, ASML’s net sales of EUR 277 million included 4 new and 6 used systems.”
That means the average selling price (ASP) of an immersion system is $45 million. Interestingly, our calculations show that the ASP was $42 million in 2008. While the dollar price
is exchange-related, clearly ASML has not reduced prices in 2009 and chip companies are willing to pay the price!
What about capex for 2010? The table below shows our estimates of…
NEW YORK (TheStreet) — Technology investors need to pay close attention to semiconductor capital expenditures (capex), because this spending can give indications of not only the state of the semiconductor industry but also the prospects for semiconductor equipment markets.
In any given year, semiconductor manufacturers make capital expenditures for two purposes: technology expansion and capacity expansion. Because of the downturn in the overall economy in 2009, capacity utilization (the ratio of the number of semiconductors to plant capacity) dropped precipitously in the first quarter of this year to 55.6% from 89.7% a year earlier, according to statistics from the Semiconductor Industry Association.
Clearly, semiconductor manufacturers would not be building new plants — known in the industry as “fabs” — at a cost of $3 billion each when more than 40% of their plants are idle.
There are only three semiconductor companies that plan more than $1 billion in capex spending in 2009: Intel(INTC Quote), Taiwan Semiconductor Manufacturing(TSM Quote) and Samsung. That’s down from the eight companies that actually spent more than $1 billion in 2008. (They also included Micron Technology(MU Quote), SanDisk(SNDK Quote), Hynix, Toshiba(TOSBF.PK Quote) and Infineon(IFNNY.PK Quote)). In 2007, 16 companies spent more than $1 billion on capex.
|
Comparing Capex
Semiconductor Capital Expenditures This Year and Last |
| Capex |
CY 2008
|
CY 2009
|
| Intel |
$4.9 B
|
$4.7 B
|
| Samsung |
Samsung
|
$4.5 B
|
| Taiwan Semiconductor |
$1.8
|
$2.3 B
|
| Toshiba |
$3.2 B
|
$900 M
|
| AMD/GlobalFoundries |
$900 M
|
$790 M
|
| UMC |
$349 M
|
$500 M
|
| SanDisk |
$1.6 B
|
$500 M
|
| Chartered Semiconductor |
$650 M
|
$500 M
|
