All,
-READ AT OWN RISK-
H&Q's Semiconductor industry review (issued 7/8; R. Chaplinsky):
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Q2 Semiconductor Industry Earnings Preview
(Please note this report pertains to all semiconductor companies, not just those manufacturing microprocessors.)
*Weak PC Chip Demand Due to Excess Inventory and Rapid Product Transitions
An unusually high number of semiconductor companies exposed to the PC market have already preannounced a weak June quarter, which, in our opinion, is primarily driven by excess inventory in the channel and rapid product transitions. We believe the majority of PC chip suppliers over-shipped in the fourth quarter of 1996 and the first quarter of 1997, resulting in excess inventory in the channels. This excess inventory is quickly becoming obsolete by next-generation chips in areas such as 3D graphics, PCI audio, and relatively higher speed MMX microprocessors, resulting in a very aggressive pricing environment.
Intel Third-quarter Guidance is Expected to be Cautious and Will Set the Pace for the Summer Months
Intel's early pre-announcement of a sequentially down June quarter is, in our opinion, primarily caused by excess CPU inventory in both Europe and Asia and slightly related to a moderation in PC consumption due to product transitions to MMX. We believe Intel;s guidance for the third quarter will be somewhat cautious as the quarter is typically back-end weighted and, therefore, difficult to forecast. This expected cautious outlook will create uncertainty in the market and, in our opinion, will cause conservative guidance from other semiconductor companies.
Fabless Multimedia Companies Continue to be Cautious, But Should Rally Late in the Third Quarter as Wafer Fabs are Filling Up
A large number of fabless multimedia companies also pre-announced a weak quarter (C-Cube, ESS Technology, Trident Microsystems, S3, and Opti)caused by enormous price erosion and softer demand for audio and graphics chips. We expect it will take most of the September quarter to work through the resulting buildup in inventory, but we continue to be optimistic given the relatively strong PC demand that typically begins in late August. Our favorite name is Trident Microsystems (BUY) based on the company's strong 3D design win nomentum and low inventory exposure to aggressive pricing of mature 2D products. We also have BUY rating on NeoMagic (NMGC), ESS Technology (ESST), S3 (SIII) and Oak Technology (OAKT).
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To be continued.
Ibexx |
