Update on semiconductor outlook from RB#15611 by myra478:
SB: The Semi Beat: CPU market very tight; DRAM trends higher
09:25am EDT 24-Apr-00 Salomon Smith Barney (JOSEPH/DECKER (415) 951-1887) INTC
--SUMMARY:----Semiconductors
*Demand for high-end processors continued to pick-up last week, while supply became increasingly tight. This weekend's Pentium price cuts should average 15-20% and slightly higher for Athlon.
*DRAM spot prices rose slightly on the week to around $6.45, while activity levels continued to build at the manufacturers. Inventories remain lean as spot shortages of legacy and even 128Mb parts are starting to arise.
*The overall industry upturn intact with last week's wave of reports showing still stretching lead times and tightening capacity.
--OPINION-------------------------------------------------------------------
Trading of P-IIIs heats up in front of price cuts.
Our checks of the processor market last week found a sharp pickup in demand for Intel's (INTC, 115 3/8, 1M) Pentium-III processors. As a result, product in the channel became increasingly tight. In contrast to normal action ahead of a "price move", average prices actually picked up slightly. The average high-end delta to for spot/list prices went from parity to a 1% premium. Considering Intel is planning to cut its list prices about 15-20% this weekend, this as a very positive indicator of the strength in current demand.
Over the last three weeks, supply of all P-IIIs in the channel has grown very tight once again. Though checks with all tier one OEMs found normal lead times last week, availability in the channel was bone-dry. Even we analysts at SSB got a dozen email requests from desperate Taiwanese brokers asking for product. Company policy does not allow us to take the CPUs out of our computers and sell them on the gray market.
This supports most company reports over the last two weeks. Virtually every company with exposure to the personal computer market (Microsoft may not be on that list, of course) has in recent weeks spoken of an accelerating PC market. Intel, Advanced Micro Devices (AMD, 78 1/4, 1S), Micron Tech (MU, 125 1/4, 2S), National Semi (NSM, 56 9/16, 1H), Texas Instruments (TXN, 145, 1M) and others have reported recovering demand for PCs. Most have noted the strength coming from U.S. corporate, but several have also noted a pickup in overseas markets, like Japan and Asia Pacific, and most seem to anticipate Europe returning as the year progresses. The reasons for the pickup beginning late in Q1 are several: 1) U.S. lockdowns coming off in the corporate market. 2) Many U.S. corporations are initiating corporate purchase programs for their employees. 3) Strengthening economies around the world are increasing IT capital spending, and 4) The market is entering a new product cycle in Win2K and Coppermine/Athlon.
Supply is improving, but slowly. Intel is having trouble getting PGA package materials from at least one of its suppliers (most speculation suggests it is Kyocera). And there are stories, though the company denies them, that it is having trouble with its flip chip packaging, which further restricts shipments of the on-board PGA Coppermine. We do believe, however, Intel's manufacturing shortages will ease as the year unfolds. For one, it now has five fabs running the 0.18-micron process, and will expand that to eight fabs by yearend, with the majority of micros running on that process by yearend. Second, as previously
announced, it is increasing capital spending from an earlier estimate of $5 billion to a new estimate of $6 billion this quarter, which should begin to ease capacity by early next year.
Athlon activity very strong.
Last week's checks continued to find rave reviews for AMD's Athlon, from both OEMs and brokers. Both supply and demand seemed to be in good shape, which suggests good manufacturing yields for AMD. We understand AMD moved ahead of Intel and pushed through some price reductions last week. As such, the Athlon's average speed-for-speed discount in the gray market to the Pentium-III stretched from an already large 57% to an incredible 77%.
We continue to believe that Intel's supply constraint issues are another positive for AMD and should allow the company to gain further ground.
DRAM market steadily growing stronger.
Once again last week, the DRAM market continued to gain momentum as mainstream 64Mbs and 128Mbs rose another $0.10 and $0.35 respectively to $6.45 and $12.65. Checks with several tier-one manufacturers found demand building, with inventories virtually burned down to normal levels. As a result, 64Mb contract prices are expected to trend towards $6.00 by the end of the month. Brokers tell us more than one OEM was complaining of 128Mb shortages last week. This is further indication that a 64Mb to 128Mb crossover is underway as OEMs shift towards a 8-chip, 128MB module solution, over the current 16-chip solution. Given that the spring time is usually the weakest time of the year, most brokers last week were surprised by the current strength of demand, which makes the current forecast for a 2H shortage easier to believe.
Checks with manufacturers and OEMs continued to yield little to no demand
for Rambus (RMBS, 167 1/2, NR) RDRAM. Though prices for 128MB RDRAM
modules have dropped from around $320 to $250 over the last month, this
is still about 2.5X regular SDRAM prices. At this point, consumers
clearly don't see a performance premium that warrants that price premium.
Overall industry trends still positive.
Earnings announcements, industry sources and channel checks last week
continued to confirm that lead times generally remain extended and are
still growing in many instances. According to Arrow Electronics (ARW, 36
15/16, NR) EPROM lead times have stretched from 8-12 weeks to 26-30 weeks
for two manufacturers. Availability is also tightening for some families
of bipolar digital logic, with lead times extending beyond the 6 weeks
previously indicated, to as long as 16 weeks. International Rectifier
(IRF, 42 7/16, 1M) has put its several power packages on controlled order
entry-i.e. allocation. Another power MOSFET maker reported last week that
lead times in December were about 8 weeks, in January dipped to 6-7
weeks, and have since risen to about 9-10 weeks. This demonstrates to us
the trend has been toward tightening, rather than loosening, over the
past six weeks.
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Apr-24-2000 12:25 GMT
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