Hello Folks. Hope everyone is well. I obtained a copy of the Merrill Lynch report dated 9/20/00 on semicondutors entitled:
SEMICONDUCTORS: Selective Inventory Build at Wireless OEMs Leading to Burnoff of Certain Components
Here is the cover page:
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Investment Highlights:
• Our channel checks are indicating that there has been a selective inventory build of components at the wireless OEMs. The build appears to have been driven by three issues, specifically 1)inability on the part of cell phone manufacturers to obtain adequate supplies of certain components such as flash or tantalum capacitors, 2)better availability for other components such as power amplifiers or DSPs, and 3)aggressive procurement practices earlier in the year on the part of the cell phone makers that are now changing.
• Even now, wireless OEMs continue to receive inadequate supply of certain components. We see the supply/demand imbalance in several cell phone components such as flash memory and low-power SRAMs getting worse, while capacitors remain tight. Our channel checks indicate cell phone OEMs remain concerned with availability of certain components, most notably flash memory, and are coming back to suppliers with requests for increased product shipments.
• Selective component inventory builds have led, therefore, to selective inventory burnoffs. Power amplifiers, receivers and DSPs appear to be most affected. Broadly
based companies such as Texas Instruments are relatively less impacted, as adjustments at one customer are compensated for by demand elsewhere. More focused suppliers such as Anadigics are not surprisingly having bigger problems.
• We believe that the return to a more conservative inventory model is ultimately good news for component suppliers. Fewer inventory adjustments means less
volatility for component suppliers, and any improvement in the demand environment during Q4 should quickly be reflected in order activity at component suppliers.
• From an investment standpoint, although company comments regarding Q4 outlook during the 3Q earnings season are likely to be conservative, we think that the worst is past. Merrill Lynch continues to expect unit shipments in the 430
million unit range for 2000, a 50% increase, with continued strong growth in 2001. Channel mismanagement is a common phenomenon in rapidly growing markets, and should not be mistaken for evidence of a rollover in growth.
• We reiterate our intermediate-term Buy recommendations for Texas Instruments and Cypress Semiconductor, and our intermediate-term Accumulate recommendations for National Semiconductor, Triquint and Atmel.
In particular, we believe that recent share price weakness has provided investors with an excellent buying opportunity in Texas Instruments and Cypress.
• We spoke to the key companies in our coverage universe in assembling our updated industry view – company-specific comments to follow. In general, we are seeing suppliers with exposure to a broader range of customers see less volatility in their outlooks, as relatively benign comments from National Semiconductor and Texas Instruments have demonstrated. |
