Re:Jonathan Joseph
Given what we believe are slowly reversing industry fundamentals, we are downgrading the semiconductor sector from Outperform to Neutral
* Some commodity prices coming in. Overall, we continue to see flat to
modestly positive price trends in much of the industry. However, in several key areas---capacitors and Flash---prices have begun to moderate in the spot market, though not yet in the contract market. Though seemingly
disconnected with the rest of the industry, these two product areas are important because they are the most extreme, and we would expect will show the first signs of reversal. For the first time in over a year, we have
begun to see spot market brokers indicate lower prices for some Flash
products. One well known broker last week reduced prices on 1Mb parts from
$8.60 to $8.30 and 8Mbs from $14.50 to $13.50. In addition, tantalum
capacitor prices have come off sharply in the spot market, with some parts
being market down from $1.00 to $0.65, and lower, in recent weeks.
Though not widespread, some brokers have begun to note some downticks in
Flash prices. One broker is quoting 1Mb parts declining on the week from
$8.60 to $8.30 and 8Mb from $14.50 to $13.50. Everything else was flat. A few
weeks ago, everything was going up. With out doubt, availability has
improved, which may contribute to further declines. Interestingly enough, SIA
shows Flash growth rates sharply decelerating, falling from 181% growth to
165% growth on the month.
On AMD,
We estimate that Flash memory this year will make
up about 30% of revenues, and slightly more than that in profits. We are
finding that availability of Flash memory has improved in recent weeks,
which is probably a precursor to declining prices in that commodity memory
area. Some brokers we have spoken with are beginning to see declining spot
market prices in (******** high and low density Flash********* note) , though we do not believe the
trend is widespread.
* Lots of Flash capacity coming on line. Flash is a commodity product---
several dozen players supply basically the same product. Given the very
high levels of profitability in that area, Flash has in recent quarters
attracted a significant amount of new capital. Virtually every large Flash
player expects to double or even triple output over the next 18 months. AMD
plans to increase its Flash capacity by 75% this year and 100% each year
for the next three years.
* Just as availability is improving. We are already beginning to see the
impact from that increased output, coupled by perhaps slower demand in
cellular handsets. Availability is without a doubt beginning to improve,
which means lead times are beginning to come in. We believe the next step
will be declining prices---already we have seen some spot brokers reduce
prices on 1Mbs and 8Mbs, though we do not yet believe the trend is
widespread. In addition, we are beginning to see industry data roll over.
Flash shipments, which reached a peak of 204% growth in February, slowed to
165% by May. Obviously, that is still a very rapid growth rate, but one
that points toward rapid deceleration.
All above quotes from SSB.
I prefer to believe Arun Veerappan (BBRS) saying to get commodity pricing ----you need over capacity and over supply----NEITHER of which are present now in SNDKs high end market (although personally I think this is interesting in light of Aus/Eric discussion of which end is most insulated from pricing pressure) |
