Semiconductor industry seems to be going through a serious slowdown as reflected from this piece of news pertaining to larger foundry players, TSMC and UMC. Some observations-
1. I was hoping that the inventory in the channels would be lean and that would lead to a pent-up demand when consumer spending improves but inventories are high at vendors and in the channels (for most businesses) and that means 2Q could be mediocre or below average too.
2. Memory industry spent way too much last 4-5 years and the spending going forward may be limited to maintenance and servicing and new shrink technology. I expect very little spending towards wafer capacity additions. Foundry players were expected to increase spending after significant restraint last few years and make-up for a slowdown from the memory industry but it seems unlikely from this piece of news. I also see some 300mm capacity being sold in the gray markets. I am surprised by the relative strength of leaders in the SCE group.
3. I am sure a lot of the slowdown is reflected in current stock prices but is all the bad news priced-in? SCE cannot expect any significant recovery until semiconductor suppliers repair their B/S with profits for at least a couple of quarters! Credit markets are tight enough that new capital will be harder to raise for money losing businesses.
4. M&A activity in this sector will pick-up out of necessity. For debt heavy, money losing companies, it is either get bought out or go belly-up and they will go with the former.
-Pam
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TSMC to see January sales hit by excess semi stockpiles
Claire Sung, Taipei; Jessie Shen, DIGITIMES [Monday 19 January 2009]
Taiwan Semiconductor Manufacturing Company (TSMC) is facing a tough time maintaining its monthly revenues above the NT$10 billion (US$298 million) mark for January 2009, as the foundry's financial performance will be affected by employees' unpaid leave amid the current downturn and the fewer working days during the Lunar New Year holiday.
Market watchers have estimated that TSMC's January sales will slide 35-40% sequentially, while surplus semiconductor stockpiles at clients have climbed to 100 days-of-inventory (DOI) on average. In the fourth quarter of 2008, TSMC had a DOI of 90 days.
Of TSMC's major customers, Nvidia has revised its revenue guidance for its fourth quarter of fiscal 2009 (ending January 25 2009) to a 40-50% decline sequentially. Xilinx also said that its fiscal fourth quarter revenues may go down 15-25% sequentially.
In addition, TSMC's utilization rate for the first quarter of 2009 will go down to as low as 40%, according to market watchers.
In other news, rival United Microelectronics Corporation (UMC) will likely see its January revenues drop to below the NT$3 billion mark, with a sequential decrease of about 35%, according to market watchers. The foundry service provider may also suffer a utilization rate of less than 30% for the first quarter of 2009.
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