All,
H&Q's Semiconductor Industry Review (7/8; Part II):
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Communication Semiconductor Will Show Sequential Strength, But Expect Traditionally Slower Growth in the September Quarter
One of the strongest sectors in the semiconductor market encompasses companies exposed to communication applications such as wireless communication, networking, and telecom. The high density programmable logic device market, led by Altera (ALTR-Buy) and Xilinx (XLNX-Buy), continued to experience solid bookings and billings throughout the June quarter and are expected to show double-digit growth in the second quarter. LSI Logic (LSI-Buy), the leading merchant market ASIC provider, is also expected to post strong sequential growth led by increasing demand at leading networking companies like Cisco and Cabletron. Although we believe inventory of high density PLDs and ASICs is relatively in balance, these companies have recently experienced an attenuation in bookings rates primarily relatd to seasonality; thus, we are expecting modest growth guidance for the third quarter. We do not anticipate our earnings estimates to increase dramatically for LSI Logic, Altera, Xilink, or VLSI Technology in the near term.
Memory Market is Mixed, But Continuing to Trend Down
DRAM prices continued to show weakness throughout the quarter primarily related to excess supply and concerns over near-term seasonal PC demand. Flash pricing in the low density segment (2Mbit and below)continues to be weak led by softer demand in Flash PC BIOs. We continue to maintain our HOLD ratings on Alliance Semiconductor (ALSC) and Silicon Storage Technology (SSTI).
Overall, We Hold a Cautious Outlook, But Remain Optimistic for a Late Third Quarer Rally
At this point, we would not be buyers of semiconductor stocks heading into the quarterly earnings season, primarily duemto the anticipated cautious third-quarter guidance that should prevail. However, we do expect the majority of the semiconductor companies exposed to PC market to rally in the back half of the third quarter as PC seasonal demand strengthens and new PC designs, which incorporate next-generation chips, begin to ramp.
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