General Tech Demand
Just from Citi - nothing really exciting ...
Asian Handset Beat
What Is Really Going On as the Global Handset Market Changes
? Sell first and ask questions later — Asian handset share prices have sold off
46% over the last two weeks on concerns of a deceleration of global handset
demand, which brings into question the success of the 3Q06 product ramp.
? Citi does not see inventory issue — Citi's global handset team does NOT see an
inventory issue, and in fact sees upside to shipments in Emerging Asia and
Latin America and upside to our 911m unit WW shipment forecast for 2006.
? Four channel check conclusions — Citi's Asian tech team channel checks with
15 companies in China, Hong Kong, Taiwan, Korean and Singapore lead to four
conclusions: 1. No cancellation of orders seen; 2. Universal expectations of a
solid 3Q/2H product launch; 3. There may be channel clearing ahead of 2H
launch; 4. Solid mass-market demand while upper-end demand may be easing.
? Citi's view on change in handset market — Emerging markets now account for
60% of global shipments in 2006, up from 40% in 2001, and will continue to
rise and dominate shipments as global ASPs contract. IMPLICATIONS: More
unit shipments, more component demand, more supply chain deflation and
favoring of mass-market supply chain, or Taiwan/China over Korea/Japan.
? Step away from a moving train — We believe handset stocks will continue to be
sold down until confirmation of better orders emerges, which should be in 3Q.
Until then, we advise stepping aside but would look for an opportunity to buy
into 3Q based on undemanding valuation and on the secular trend favoring
lower-cost manufacturers and mass-market/Emerging Market demand.
Taiwan Semiconductor Sector
Consumer and Memory IC as Winners; LCD and PC IC as Losers
? Consumer and Memory IC as winners — The Taiwan Semiconductor Industry
reported a sales decline of 4% mom in May (-4% mom in April 06), worse than
the past 3-year average of +1% mom. Strength in May was largely in consumer
IC (+6% mom) and DRAM vendors (+2% mom).
? LCD and PC IC as losers – Notebook demand push out (due to pre-CPU price
cut), coupled with falling ASP (-8% mom) and inventory adjustment on LCD
industry, led to LCD panel vendors reporting sales declines of 10% mom in May
2006 and PC IC vendors reporting sales declines of more than 10% mom.
? Apr-May sales vs. Citigroup's forecast and company guidance — Comparing
April-May sales with our forecast and earlier guidance, ASE Group, SPIL, Holtek
and all DRAM vendors' sales were better than expected. However, we still see
downside risks on LCD components and tier-two TFT players.
? Discrepancy between OEM/ODM and Semis — Largely as a result of notebook
demand push out, Taiwan OEM/ODMs reported May sales declines of 9% mom,
worse than the past 3-year average of -5% mom and Semi's -4% mom,
suggesting rising inventory days, especially for notebook semi components.
? Outlook for June and 3Q06 — Although both Semi and OEM/ODM vendors
reported weaker-than-expected May sales, we expect stable, or even an uptick
in, sales for the notebook and PC sectors in June, which should continue into
3Q06 to benefit foundries, OSAT, fables and DRAM vendors. TFT LCD weakness
should remain for another month or so.
BUGGI |
