SSB on intel ...............
07:36am EDT 9-Apr-01 Salomon Smith Barney (Jonathan Joseph 415-951-1887) INTC
The Semiconductor Beat
SALOMON SMITH BARNEY Industry Note
Semiconductors
The Semiconductor Beat
April 9, 2001 SUMMARY
* The next shoe to drop in the current semiconductor
Jonathan Joseph downturn will likely be prices, particularly in
415-951-1887 Flash, discretes, microprocessors and foundry
jonathan.joseph@ssmb.com wafers.
Dunham Winoto * Intel microprocessors dropped by 3 points on the
415-951-1875 gray market to a 16% discount to list as prices
continued falling across the board. AMD's processors
also fell 5%, with high end processors dropping by
as much as 8%.
* DRAMs continued descending from the peaks of two
weeks ago, as 128Mbs dropped by 8% and are now down
over 20% from their recent highs of $5.50. Trading
volumes for the newer memory types (DDR and Rambus)
are inching up, though price declines have been
quite sharp.
* Flash prices were also weak across most densities,
with 16Mbs (used in many handsets) down 6%, 8Mbs
down 1.2%, and 1Mbs down 12.7%. Others including
high-end 32Mbs and 4Mbs were unchanged.
OPINION: PRICES ARE THE NEXT SHOE TO DROP
"You study the market's habits, and patiently await the moment for one, and
only one, well-aimed shot." Vassili Zaitsev, a former Russian sniper with 149
confirmed "kills" now turned stockbroker in Stalingrad.
The SOX fell another 10.5% last week as investors became increasingly concerned
not so much by March quarter results as by the June quarter outlook. That
outlook appears to be monolithically bleak. Previously, most managements were
concerned about an inventory pushout, which affected unit demand. There are two
phases to any semiconductor downturn: the first is a unit inventory correction,
the second is weaker prices. In talking to ON Semiconductor #(ONNN-$4, 2S)
recently, management noted that net order cancellations were declining and was
very glad price pressure had not yet set in. We pointed out, however, that
customers only negotiate prices when they actually want to take product. As
customers once again decide to take, rather than return, product in coming
quarters, they will almost certainly want to share the pain whenever they can.
In recent weeks, we have begun to hear of greater price concessions in a number
of markets, particularly in Flash. The spot market for Flash is not nearly as
liquid as that market for DRAM. However, the difference between spot and
contract (or distributor) prices for Flash is pretty stark, and we believe will
continue to close the gap to the downside in coming months. Last week we found
distributors selling AMD 32Mbs for $24 list, while the spot market was asking
only $15; Intel 32Mbs, which have functionally been the same but sold at a
lower price, were selling for $15 list and $12.50 spot. The gap is similar in
the 16Mb market. AMD's distis are listing the product for $13 and the spot for
$6; Intel's 16Mbs sell for between $12-17 list, with a similar spot price. We
suspect a number of areas will see pricing pressure for the next couple of
quarters, including Flash memory, discretes, microprocessors, and foundry
wafers. Interestingly, the two areas that collapsed the most in the 1995-96
downturn, DRAM and SRAM, will likely continue to see weakness but may be
relative outperformers in the next couple of quarters because of the lower
levels of capital they have attracted in recent years.
MICROPROCESSORS SLIDE IN ANTICIPATION OF PRICE CUTS
Intel (INTC-$24, 2M) continues to be battered by AMD in the mega-hertz race. In
the performance segment, the company continues to be hobbled by the P4's
dependence on expensive Rambus-DRAM, which is contributing to a slightly slower
than expected pickup in demand for that product. In addition, last week in the
value segment AMD #(AMD-$20, 2S) released its 900MHz version of the Duron
processor, without a response from Intel. The fastest Celeron runs at 800MHz.
Over the week, the discount to list on Intel processors widened by 3 points to
16% as prices fell across the board in anticipation of a schedule price move
next week. Pentium III prices also fell, and their discount to list widened by
2 points to 13%. Some brokers are reporting that the 866MHz PIII is turning out
to be the most popular Intel CPU out on the market, and as a result its price
has been holding up better than its peers. AMD processor prices dropped 5% over
the week as prices on its recently introduced 1.33GHz processors dropped by as
much as 8%.
DRAM SPOT CONTINUING TO SLIP
Action in last week's DRAM spot market continued to head south as pricing for
mainstream 128Mbs fell another $0.39 (down 8%) to $4.30-4.50, while 64Mbs fell
about 7% from $2.35 to about $2.18. 128Mb prices have now fallen over 20% from
recent highs of $5.50-5.60 (set the week before last). Demand is not helping
out much. While SIA data showed that dollar shipments slowed to -25% year-over-
year in February, down some from -17% in January, bit growth fell more sharply
to up 63% from up 82%. Brokers indicate to us that trading volume has
definitely dropped from levels seen during the recent price run-up. Though
overall demand is still weak, we are hearing reports that high-end PCs are
doing relatively better than the low-end. On the DDR front, as indicated during
its earnings conference call, Micron (MU-$37, 2S) is set to boost production by
as much as 30% by calendar Q4. In addition, the DDR price premium over SDRAM is
continuing to narrow; 128MB DDR modules are now available for about $50, or
about 1.4x conventional SDRAM, down from about 2.5x in recent months. In
comparison, a 128MB R-DRAM module currently sells for about $110 on the spot
market, down from $165 in early February but still appreciably higher than DDR.
FLASH STILL STUCK IN LOW GEAR
According to the SIA, bit growth for Flash in February fell to 74% growth from
81% growth in January, while shipments slid from up 67% to up 47%. Note that
for all of 2000, total Flash shipments grew 133% yoy. The latest data shows
that average prices are clearly trending down even as the industry is shipping
a greater percentage of high density parts. Prices in the spot market were soft
once again last week. Prices for some densities were down while others were
flat. Those that declined on the week include 16Mbs (used in many handsets),
down 6% from $6.92 to $6.50, 8Mbs down 1.2% from $7.08 to $7, and 1Mbs down
12.7% from $3.15 to $2.75. Others including high-end 32Mbs at $13.75 and 4Mbs
at $3.25 were unchanged on the week. Brokers were glad that March was finally
over; apparently that month was one of the most difficult in recent years in
terms of demand even as prices continued to slide by the week. |
