SSB - the Athlon is far more popular than the PIII/P4.
07:14am EST 26-Feb-01 Salomon Smith Barney (Jonathan Joseph 415-951-1887) QCOM
The Semiconductor Beat
SALOMON SMITH BARNEY Industry Note
Semiconductors
The Semiconductor Beat
February 26, 2001 SUMMARY
* Last week bad news out of Europe and the cellphone
Jonathan Joseph market pushed the SOX down 8%. This week, we expect
415-951-1887 more downbeat news from PC component suppliers as
jonathan.joseph@ssmb.com Taiwanese motherboard & chipset makers temper their
Dunham Winoto optimism.
415-951-1875 * Gray market prices for Intel micros eased about 1%
to a 9% discount to list, in line with the decline
in PIII's prices. AMD processors dropped 3% over the
week in anticipation of a March 5 price cut, which
may be matched by Intel.
* DRAM prices for "branded" 128Mbs chips dropped 4%
over the week to end at $4.08, even as some brokers
reported that it breached the $4 level. Meanwhile,
64Mbs fell by 1% to $2.05, with market psychology
downbeat.
* Low density Flash took another hit, with 1Mbs
falling 16% to $3.50, 4Mbs 5% to $4.75, 8Mbs 8% to
$7.50 and 32Mbs down 5% to $19. Only 16Mbs remained
stable at $7.75, for the fourth week in a row. Most
brokers are expecting more price pressure in coming
weeks as more capacity ramps.
OPINION: MORE BAD NEWS FROM PC LAND LIKELY THIS WEEK
When you see smoke on the other side of a mountain, you already know there's a
fire; when you see horns on the other side of the fence, right away you know
there's an ox there. To understand three when one is raised...this is the
everyday work of a (financial analyst).
The Blue Cliff Record, an 11th century Chinese Zen text
Two main investor concerns drove the SOX down about 8% last week: realization
that the second half would not stage a miraculous "V" shaped recovery, and
recognition that Europe, once a source of economic strength, has begun to
weaken. One thing that did not help the outlook for Europe was the flood of
analyst calls out of the GSM Congress in Cannes that 3G would be pushed out two
years (Qualcomm QCOM-$62, 1H), that the GPRS up-take would be slow, and that
forecasts for worldwide digital cell-phone sales this year were being revised
downward to about 460 million units (Kyocera KYO-$98, 2H). Then there were
negative comments on Europe from Cisco (CSCO-$27, 1H), followed by a pretty
downbeat Motorola #(MOT-$16, 2M) conference call.
With concerns that Intel is running below their guidance, as we believe it is,
there has been a chill in the personal computer segment. This week, it looks
like the Taiwanese, who helped spur a mini-rally in late January with talk of a
pickup in demand from European white box market, are backing away from their
previously bullish statements. Press reports out of Taiwan today suggest the
outlook for March is for flat to down shipments of motherboards, following
sharply down shipments in February, which were explained away by Chinese New
Year vacations. The apologists for the world-wide slowdown in technology
spending are now suggesting CeBIT, held later in March, is to blame. Our Taiwan
analyst, Andrew Lu, says that VIA is now reiterating that the strong pickup in
orders in January and early February were was just short-term inventory
restocking. Other chipset suppliers, like SiS and Acer Labs, have also seen
weakness.
This is one of those downturns nobody escapes from without bruises. We expect a
wave of new profit warnings in coming weeks, and Intel is a prime candidate.
Given the downbeat news, the fact that we will soon be discounting the summer
slowdown, that the fundamental bottom cannot come before August of this year,
and that in 24 years and five downturns, investors have not anticipated the
bottom by more than a single month in advance, the bias in the sector still
looks to be flat to down.
PROCESSOR MARKETS EASE LOWER
February has remained a relatively slow month for many of the brokers we talk
with. Intel (INTC-$30, 2M) microprocessor gray market prices declined slightly
on the week from an 8% to a 9% discount to list. Pentium III prices also edged
downward slightly to a 9% discount from 8% in the week before. It is pretty
clear to us Intel continues to see a weakening in its business, and is taking
steps to minimize the impact. Last week, the company announced it would push
out certain pay increases, clamp down on discretionary expenses, and be less
generous with its "free PC" program. We have also heard the company has already
decided to cut back on its capital spending plan from the previously announced
$7.5 billion to somewhere between $5.5-6.5 billion. Intel old-timers, who have
the scars of many downturns on their backs, believe the belt tightening was
long overdue. The Intel Developer Forum will begin this week, which is a great
program of over 250 Intel and vendor-sponsored sessions focusing on new
technologies like voice recognition, high-speed Ethernet, InfiniBand, and
802.11b wireless, among others. There will also be updates on the P4 and IA-64
roadmaps (McKinley is said to be slipping). There have been press reports of
scheduled Intel price cuts on some of its processors in two weeks.
AMD #(AMD-$22, 2S) will institute its own price cuts on March 5, mostly to
prepare the way for the new Athlon-Palomino processor, which will have a 266MHz
front-side bus. As a result, Athlon processor prices dropped 3% over the week.
At least in the gray market, the Athlon is far more popular than the PII/P4. It
is unfortunate that just as AMD is hitting its stride in gaining the strongest
competitive position it has ever enjoyed against Intel, the PC market is mired
in its worst downturn in 15 years.
DRAM DECLINE SLOWED, THOUGH BROKERS ARE DOWNBEAT
"Bombs away!" is the way one of our broker friends described the DRAM market
last week. Though psychology may have been a little more negative than reality,
it is clear the DRAM market is in tough shape. Spot market prices for "branded"
64Mbs weakened about 1% to $2.05, following a 4% drop the previous week.
Equivalent "unbranded" parts continued to sell for $1.75, unchanged on the
week. In comparison, prices for higher-density "branded" 128Mbs traded down to
$4.08, about 4% lower than last week's level. Some brokers were reporting that
prices fell below $4.00 by week's end. To put things in perspective, spot
prices have declined about 26% since the beginning of this year alone, and an
even more staggering 77% from last year's mid-summer spike when talks about a
potential DRAM shortage first arose. Though demand is still below normal, with
prices so low there was some sporadic buying interest including a few from
OEMs. However, brokers think that these buyers merely being opportunistic,
rather than signs of strengthening demand. Activity in most geographies was
nothing to write home about except for a minor pickup midweek in China.
FLASH: THIS TIME LOW-END 1MEGS TUMBLING; MORE PARTS SEEN ON THE MARKET
Last week the spot light in the Flash market was again on the low-end. Rather
than 4Mbs, 1Mbs led the way down, losing 15.7% from $4.15 to $3.50, while 4Mbs
weakened 5% to $4.75, following a huge 16.7% decline last week. Other densities
were once again mixed, with 16Mb TSOPs (the standard part for handsets) staying
put at $7.75 for the fourth week in a row, while 8Mbs fell 8.2% from $8.17 to
$7.50. High-end 32Mb TSOPs traded at $19, down 5%. Most brokers are expecting
more price pressure in coming weeks due to an increase in availability.
Meanwhile, ST Micro# (STM-$34, 2H), a major Flash producer, broke ground on its
M6 facility in Italy and expects to begin Flash production there in 24 months.
At the same time, its M5 fab, which produces non-volatile memories, should see
an increase in wafer output from 3,300 wafers per week to 5,500 per week by the
end of this year. |
