Monday, February 1, 2010

Semiconductors Strong Microprocessor Sales Drive Above Seasonal December; Maintain 2010 Forecast of 15% Growth

On Sunday, January 31, the SIA announced December monthly sales of $23.5 billion, or a MoM increase of 8.6%, above the average December MoM increase of 3.8% but roughly in line with our estimate of an 8.0% MoM increase or $23.3 billion. The three-month-rolling average sales for October-December decreased 1.2% YoY to $22.4 billion, in line with our estimate of $22.4 billion.

• Microprocessors drive growth. Total semiconductor sales in December
increased an impressive 47.8% YoY, above the average December YoY
growth of 14.4%. Strong microprocessor revenue offset relative weakness in a
handful of segments with flash and DSP exhibiting the weakest growth
relative to their seasonal norms. We were not surprised at the strong
microprocessor revenue given the upside from AMD and Intel’s quarters.

• Units increased slightly less than expectations . . . Units ex-discretes
increased 40.5% YoY in December, below our estimate of a 46.9% increase
YoY due mostly to below-seasonal unit growth in flash and DSP. December
unit shipments including discretes increased 57.9% YoY, below our
expectation of a 61.3% increase YoY.

• . . . and pricing too. Average selling prices increased 2.7% YoY in December,
roughly below our estimate of a 3.1% increase YoY. Strength in
microprocessor pricing was offset by declines in memory.

• 2009 comes to a close. Total semiconductor units decreased 6% YoY during
2009 while pricing declined 4% YoY to equal revenue declining 9% YoY for

• Maintaining 2010 estimates. We are maintaining our 2010 sales forecast of
15% YoY growth or sales of $260.0 billion. We estimate units to grow 15%
YoY and pricing to remain flat YoY during 2010.

• Seems like a lot of good news already priced into stocks. Despite a strong
mid-teens revenue growth estimate for semis this year, it does not make us
positive on the stocks as it appears mid to high teens revenue is already priced
into semiconductor stocks. Our coverage universe already has an average of
21% YoY revenue growth for 2010, well above our overall semiconductor
industry estimate of 15% YoY revenue growth in 2010.

• Semis at/close to the peak. Although there is no negative data point on the
immediate horizon, given how late it is in the upturn we do not see evidence to
support a multi-quarter extension given peak margins at Intel, TI, and many
other stocks. We believe a decline in lead times will signal an upcoming
correction, which we expect to happen sometime during 1H10.


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