SSB seems to think that Intel price war would fall short of required effect
on amd. Should hurt intel though
07:07am EDT 20-Aug-01 Salomon Smith Barney (Jonathan Joseph +1-415-951-1887) TS
The Semiconductor Beat
SALOMON SMITH BARNEY Industry Note
Semiconductors
The Semiconductor Beat
August 20, 2001 SUMMARY
* The Taiwanese foundries are proving to be good
Jonathan Joseph indicators of a cyclical bottom in semiconductors.
+1-415-951-1887 TSMC has seen two month-on-month revenue gains,
jonathan.joseph@ssmb.com while both TSMC and UMC are expecting a solid uptick
Ramesh Misra in September.
+1-415-951-1883 * Intel micro prices dropped from a 21% to a 24%
gray market discount/list price as the 1.8GHz P4s
Dunham Winoto fell $101 (18%) ahead of the scheduled price cuts
+1-415-951-1875 next weekend. AMD processor prices fell 6% on the
week in response. We are getting signals that
business for Intel is firming going into the last
month of the quarter, which we take as a positive
sign the company can hit the low-end of its revenue
guidance of $6.2-$6.8 billion.
* Lower-density DRAM spot prices fell 4% on the week
with 128Mbs trading down from $1.53 to $1.47 and
64Mbs down from $0.74 to $0.72; 256Mbs fell sharply
from $3.75-4.00 to about $3.10-3.30 as they approach
price parity.
* Flash was mostly stable, though 16Mbs fell a sharp
30% from $4.75 to $3.32.
OPINION: NEWS FLOW OUT OF TAIWAN REASONABLY GOOD
Yun Men said, "I don't ask you about before the fifteenth day; try to say
something about after the fifteenth day." Yun Men himself answered for
everyone, "Every day is a good day."
Of course, this 10th century Chinese Ch'an (Zen) master never invested
in a technology stock. (from The Blue Cliff Record)
We continue to look for the semiconductor sector to set a bottom in this, its
sharpest and deepest ever downturn, in Q3. We are getting some encouraging news
out of the foundry business that supports our view. Early last week, Taiwan
Semiconductor (TSM-$15, 1M) reported July sales had grown by 1% mom, the second
monthly increase in a row, driven mostly by stronger demand from graphics chip
suppliers Nvidia (NVDA-$6, NR) and ATI (ATYT-$10, NR), as well as from leading
chipset suppliers gearing up for the P4 ramp. UMC (UMC-$8, 1M) sales declined
by about 9% mom, though August is expected to level off. Both TSMC and UMC are
receiving substantial orders for next-generation 0.13-micron products from
leading FPGA companies, which should lead to continuing increases in the month
of September.
The Taiwanese motherboard business has also been relatively strong in August.
Asustek Computer (2357.TW-NT$151, 2L), a leading supplier of motherboards and
notebooks in Taiwan, is a pretty good proxy for Taiwanese manufacturers. The
company is expecting a rebound this quarter after a disappointing Q2. July
started slow, but August to date has been quite strong for the company in
motherboards, and notebook shipments in the month could double, partly the
result of a large special order from a German distributor. Overall, we expect
Taiwanese motherboard shipments to increase about 15% in August over July.
Motherboard shipments do not represent end-demand, but they are one of the many
datapoints we use to understand worldwide personal computer component demand
trends.
The negative noise out of Dell (DELL-$23, 3H) last week drowned out a couple of
reports that showed promise of firming trends in the semiconductor sector.
Analog Devices (ADI-$48, 1H) said that it was beginning to see growing bookings
in some sectors of the communications component segment and that inventory
levels were falling. In addition, Avnet (AVT-$24, NR), the large electronics
components distributor, reported increasing IC orders in North America and Asia
and that overall bookings levels in August are slightly higher than in July.
The company did caution, however, that microprocessors remain weak.
MICROPROCESSOR PRICES FALL AHEAD OF SCHEDULED PRICE CUTS; INTEL BUSINESS
FIRMING
Prices on Intel's (INTC-$28, 1M) flagship P4-1.8GHz processor fell a sharp
$101 to $463 on the week, mostly ahead of the scheduled price cuts next weekend
that will bring the list price on this processor down to $256. In addition, the
1.8GHz processor will relinquish its short-lived flagship status to the P4-
2GHz, which will be introduced next Monday at the Intel Developers Forum.
Our inputs, which have been verified through formal channels, are that business
at Intel has firmed in the last couple of weeks, with the company recording
both a solid uptick in units and a slight uptick in prices. This gives us
greater confidence the company can at least hit the low-end of guidance ($6.2
billion in revenues, -2% qoq) in Q3.
AMD (AMD-$14, 1S) average processor prices fell 6% on the week as the 1.4 GHz
Thunderbird (266 MHz FSB) dropped 25%, in-line with the price drop on the P4-
1.8 GHz. Our inputs suggest AMD is losing ground to Intel's powerful P4 push on
the desktop at key U.S. OEMs like Gateway (GTW-$10, 3H), Compaq # (CPQ-$14,
3H), and possibly Hewlett-Packard # (HWP-$24, 1M). Press reports also mentioned
IBM # (IBM-$105, 1M), which we believe is minor. Given that this should be
partly offset by increased sale of the low-power Athlon, called Palomino, we
believe the share of the desktop lost by AMD will amount to less than 5% of
company sales over the next year.
DRAM A LITTLE LOWER; BACK TO SCHOOL NOT IMPACTING MARKET; THE SHIFT TO 256 MEGS
DRAM prices drifted lower in a slow summer season as slow Back-to-School sales
of personal computers had little negative impact (excess inventory built on
miscalculation), or positive impact (an unexpected shortage). Average prices
for 128Mb parts in the spot market down-ticked modestly this week from $1.53 to
$1.47 (-3.9%), though contract prices were unchanged at $1.55-1.65. After
starting the week at about $0.74, 64Mb parts also fell to finish lower at $0.72
(-3.6%) on the week. Demand in most regions was slow this week, with the
exception of China. OEM activity was reported to be quite muted, and one
explanation offered by brokers is that many suppliers may have done most of
their selling in July to avoid quarter-end pressure typically seen in August.
In addition, at least one major DRAM supplier apparently tried to raise list
prices by about 20-25% for some parts, but could not make it stick because
others would not follow suit.
Spot pricing for next-generation 256Mbs however declined sharply this week from
$3.75-4.00 to about $3.10-3.30, which is close to parity with 128 Mb parts (2x
128Mb prices), with volumes reported to be appreciably higher. This could be
due to more manufacturers switching production to the relatively more
profitable 256Mbs. Meanwhile, local press reports suggest that Taiwanese DRAM
makers, including Nanya and Mosel Vitelic, are trying to arrest the fall of
prices in at least two ways: (1) Come to an agreement to jointly cut production
in face of weak prices, and (2) Proceed with their plans to lower costs by
building more efficient 12-inch fabs, the first of which is scheduled to start
limited volume pilot production in the next few weeks.
FLASH MOSTLY STABLE EXCEPT HIGH-END PARTS
The stability in Flash spot market pricing that we have seen the past four
weeks came to an end this week. While many densities were still unchanged from
last week, e.g. 8Mbs ($4.75), 4Mbs ($1.75), 1Mbs ($1.63), high density parts
were weaker. 32Mbs fell from $7.50 to $7.25 (-3%), and 16Mbs dropped sharply
from $4.75 to $3.32 (-30%). A broker told us that this could be attributed to a
large quantity of 16Mbs that was unloaded mid-week at below market pricing.
While a few were picked up immediately by speculative players, the rest ended
up as channel inventory as demand is still weak, which then put pressure on
"open market" pricing. Volumes in other densities remain light with many
players choosing to stay off the market. |
