Athlon-1.5Ghz within 2 weeks - my wishful thinking but any 2 speed grades would be good
09:09am EST 5-Feb-01 Salomon Smith Barney (Jonathan Joseph 415-951-1887) HWP M
The Semiconductor Beat
SALOMON SMITH BARNEY Industry Note
Semiconductors
The Semiconductor Beat
February 5, 2001 SUMMARY
* Following the Intel price move last week, the
Jonathan Joseph discount for processor gray market to list narrowed
415-951-1887 from 13% to 3%. AMD prices were flat. Anecdotal
jonathan.joseph@ssmb.com evidence points toward a slow start to the quarter.
Dunham Winoto * DRAM prices resumed their downward spiral, setting
415-951-1875 new lows last week. 64Mbs declined about 4.2% to
about $2.50 (unbranded at $2.00), while 128Mbs fell
7%, breaking $5.00 in volume for the first time.
Brokers are downbeat on their outlook for prices
going forward.
* Flash prices weakened again last week, with 8Mbs
and above declining on average 8%, while cell-phone
oriented 16Mbs plunged 21% to $7.75.
* Overall December SIA data showed shipments slowed
from 28% yoy growth in November to 22% in December,
the fourth month of deceleration. We expect
shipments to continue slowing at least through
August of this year.
OPINION: THAT IS ALL WE GET FOR 100 BPS?
As with most of technology, there are two major forces driving semiconductors
right now: the actions of the Fed, obviously a positive force, and the
continuing weak fundamentals, a negative force. Given the Fed is finished at
least until late March, investors will likely once again focus on the
fundamentals. Unfortunately, we have not gotten much of a pop yet out of those
100 bps. On January 3, the SOX index closed at 670; last Friday it closed at
689, 2.8% higher.
The fundamentals continue to weaken at least as rapidly as any previous
downturn. Executives all seem to be using the expression credited to Carly
Fiorina, of Hewlett-Packard# (HWP-$36, 3M): 'Things began to weaken in...(name
your month)...and then in...(the next month), the lights went out.' Rather than
holding some ray of hope, January appears to have been even darker than
December for microprocessors, DRAM and Flash memory, and analog semiconductors.
Not to say all the January data points were negative. VIA Technologies (2388
TW-NT$275, 3H) reported higher than expected January sales of NT$3.1 billion,
up 33% mom and 91% yoy, according to our Taiwan analyst Andrew Lu. VIA shipped
about 4.0-4.2 million units of chipsets in January, better than our estimate of
3.0-3.5 million units. The company attributed the pickup to restocking
following the holidays and a slight improvement at clone and whitebox makers.
Large OEMs remained weak. At this time, we see VIA's data point as an outlier,
rather than an indication of a trend reversal.
Channel chatter suggests microprocessor sales were generally disappointing in
January. Meanwhile, DRAM prices have once again resumed their downward trend,
breaking into new lows last week. And Flash prices, especially for cellular
handsets, declined sharply. Nor was National Semi (NSM-$25, 2H) very upbeat
about its analog and mixed signal business on Thursday afternoon.
MICROPROCESSORS STILL SOFT
Following Intel's (INTC-$36, 2M) price move last weekend, the average gray
market discount to list price narrowed from 13% to 3%. For Pentium IIIs, where
the price cuts were largely limited to the higher speed versions, the discount
to list dropped from 16% to 6%. The recently introduced P4-1.3GHz and the
Celeron 800 MHz remain in short supply and are trading at a premium to the list
price. Intel's hope is that the latest round of price cuts will stimulate
demand, but in talking with motherboard suppliers and PC OEMs, general sales
remain pretty weak and the Pentium 4 in particular has been pretty
disappointing. In fairness, however, Intel has yet to really push that product
to consumers. AMD# (AMD-$24, 2S) processor prices remained flat for the third
week in a row. Trade press reports suggest AMD will debut a 900MHz Duron and at
least one, and possibly two higher-speed versions of the Athlon processor in
the first half of February.
DRAM SETTING ANOTHER ALL-TIME LOW
While the weakness in prices may not come as a surprise to those who have been
following the DRAM market, brokers are increasingly frustrated by what they
perceive as an endless downward drift in spot prices. Some are reporting they
have never seen more parts more available on the market. Last week, 64Mbs
declined 4.2% to about $2.50, while 128Mbs declined 7% to solidly break $5 for
the first time. A week ago we reported that scattered trades below $5, but
volumes were light at that level. Last week, sub-$5 volumes picked up and some
brokers expressed concern that 128Mb prices could fall to $4 in a number of
weeks. Note that at current prices, 128Mbs are finally falling below par (2x)
vs. 64Mbs, an indication that 128Mbs are now the bellwether DRAM. Recently,
prices for 64Mb EDO, an older technology used largely in workstations and
networking applications, have come down significantly. 64Mb EDOs were selling
for $20 three months ago, $12 two months ago, and are now trading at $7, with
lots of parts available. Both Micron Tech (MU-$41, 2S) and Samsung (5930KS-
W220,000, 2H) have made very good money by overweighting EDO sales in recent
quarters.
HIGH END FLASH DOWN AGAIN
Spot market prices for higher-density Flash memory (8Mbs and above) declined on
average 8% from $11.67 to $10.75 this week. Hardest hit were 16Mbs (most
commonly used in cellular handsets), which fell a hard 20.5% from $9.75 to
$7.75. Next were 8Mbs, which lost 3.7% from $9 to $8.67; 32Mbs dropped slightly
from $23.50 to $23. On the low end, 4Mbs and 1Mbs were pretty stable at $6 and
$4.20 on the week. We continue to believe market environment for Flash this
year will be challenging. Silicon Storage# (SSTI-$13, 3S) missed analysts'
estimates for the December quarter due to a large number of cancellations and
returns. The company reported it expects average price declines on the low end
and sharp price declines at the high end as competition there heats up this
year. On the demand side, brokers reported that buyers are "nowhere to be
found".
SIA DATA SHOWS CONTINUING DECELERATION
December SIA data, which came out late Friday, showed further deceleration in
the industry. Three-month shipments slowed from up 28% year-over-year in
November to 22% yoy in December (we had heard from a high-level European
industry executive that SIA might report shipments would slow to 10% in
December). Shipments fell 2% on a month-to-month basis. Unit shipments also
slowed from up 19% yoy in November to 13% in December. Declines were
particularly great for DRAM (up 9% to down 7%), MPU (up 16% to up 5%) and DSP
(up 25% to up 15%). All geographies' growth slowed from the previous month, and
Asia-Pacific decelerated the most from 21% to 13% in December. DRAM bit growth
bounced some from up 64% to up 85%.
FIGURE 1. SIA SEMICONDUCTOR SHIPMENT DATA (3-MONTH AVERAGE)
Source: SIA and Salomon Smith Barney
EMS INVENTORIES IMPROVED SLIGHTLY LAST QUARTER
There was some improvement in contract manufacturing inventories during the
December quarter as is evident in the table below, which was compiled by our
sector analyst Michael Morris. Overall, sales grew by 18.1% qoq, while
inventories grew by only 14.1%. The greatest improvement came from Celestica#
(CLS-$73, 1H) which recorded a 32.6% increase in revenues and only a 2.7%
increase in inventories, while Solectron# (SLR-$40, 1M) and Jabil# (JBL-$37,
1H) (both November ending quarters), were neutral to negative. Unfortunately,
Cisco's (CSCO-$36, 1H) upcoming earnings report will likely to show a further
rise in inventories, fanning concerns about how long the current communications
component inventory situation may last. We believe that the overhang may be
cleared by the end of Q2, though a further deterioration in end market
fundamentals may push out that date. |
