SSB's Semiconductor Beat for 8/27/01:
Semiconductors
The Semiconductor Beat
August 27, SUMMARY
2001 * DOC data showed that July semi bookings declined 52% yoy,
down from June's -41% yoy, representing the deepest drop in
Jonathan 30 years. The book-to-bill ratio for semiconductors rose
Joseph slightly from 0.77 in June to 0.80 in July, showing gradual
signs of stabilization. Given that July 2000 is the toughest
order comparison, we believe orders probably set a bottom
Dunham Winoto last month.
* Intel gray market P4 prices fell sharply ahead of
scheduled price cuts, which should average 39%. The over-all
Ramesh Misra discount to (old) list for Intel CPUs widened 7 points to
31%; PIII prices slipped a point to a 24% discount. Intel
will widen the gap with its P4-2GHz on Monday, though AMD
micro prices fell only 1%.
* It was a quiet summer week for DRAM; 128Mbs fell from
$1.47 to $1.42 (-3.4%), 64Mbs dropped an insignificant 1.5%
from $0.72 to $0.71.
* Spot for 16Mb Flash was flat at $3.32, after declining 30%
a week ago; 32Mbs fell from $7.25 to $6.75 (-6.9%) and 8Mbs
from $4.75 to $4.63 (-2.6%).
OPINION: DEPT OF COMMERCE ORDERS PROBABLY BOTTOMED IN JULY
"It is not from the benevolence of the butcher, the brewer, or the baker,
that we expect our dinner, but from their regard to their own interest. We
address ourselves not to their humanity, but their self love."
Adam Smith, Wealth of Nations (1776)
Not quite the same as:
"Greed is all right...Greed is healthy. You can be greedy and still feel good
about yourself."
Ivan Boesky, arbitrageur (1986); a year later, he was sentenced to three
years for felony violation of SEC insider trading laws.
Last Friday, the Department of Commerce released the July semiconductor
segment data extracted from the advance U.S. Durable Goods Orders release. We
find the data rather "noisy" and therefore caution investors from using a
single bullet in deciding greater industry trends. Nevertheless, we believe
the latest DOC billings, bookings, backlog, and inventories for the month of
July probably represented the bottom, particularly in orders, which peaked
from May-July of last year.
On a seasonal basis and reflective of the slow summer many of our
semiconductor manufacturers have been reporting, 3-month average bookings
fell 4% from June, compared to a 10-year seasonal average of flat month-over-
month.On a year-over-year basis, 3-month bookings declined 52%, compared to
down 41% in June, and we believe represent the deepest decline in 30 years.
The book-to-bill ratio for semiconductors rose slightly from 0.77 in June to
0.80 in July, showing gradual signs of stabilization, a positive. A ratio
below 1.0 implies that backlog is being drained (though at a slower rate in
July), which contributed to the 8% decline in backlog from June.
Again on a seasonal basis, July shipments were also weaker than the norm,
with the three-month average falling 7% from June, compared to a 10-year
average of down 1%. On a year-to-year basis, three-month shipments declined
by 26%, compared to down 17% in June (for comparison, SIA data showed a 31%
decline in June).Similar to the SIA data, the most difficult year-over-year
compares for the DOC shipment data is in August or September, both peak
months last year.
We question the accuracy of the DOC data regarding 3-month average chip
supplier inventories, communications, and computer inventories. The DOC
showed these inventories as essentially unchanged in June, though anecdotally
we know that most of our companies are reporting a decline in inventories, as
are the communications equipment makers. This is a large part of the reason
why company-specific orders are increasing, because inventories at some of
the largest equipment companies have bottomed and are now being replenished.
P4 PRICES DECLINE AHEAD OF INTEL PRICE CUTS
This weekend's price cuts by Intel (INTC-$29, 1M) were a non-event, as P4
trading was already occurring at these new price levels for much of last
week. As we reported more than a month ago, the sharpest edge of Intel's
price cutting axe was aimed at the P4s, where average list prices should be
down about 39% (though according to recent "chatter" it could go as high as
50%). At the Intel Developer Forum on Monday, the company will introduce a
2GHz P4, further distancing itself from AMD (AMD-$15, 1S). Intel will also
retake the speed leadership in the "value" segment by introducing the 1.1GHz
Celeron this week.
While the Blue Man Group was not among the representatives from PC OEMs that
flew by helicopter to Redmond, WA to pick up "Golden" copies of Windows XP,
Intel was no doubt flying an observer plane overhead. These new XP systems go
on sale September 24, which means the initial XP build will figure into
Intel's Q3 results, something that seemed in question even a couple of weeks
ago. The P4 price cuts did not come a moment too soon.
While the overall Back-to-School build has been tepid so far, we are seeing
pockets of strength as some brokers are reporting higher sales and an
improved volumes in August over July. In addition, there seems to be quite a
scramble going on for i845 chipsets (SDRAM rather than RDRAM interface). We
would expect about 1.5 million units to ship this quarter, representing about
half of all P4s shipped. Internally, Intel seems quite excited about the
reception of the i845, and is pulling its i845G, which will be the DDR
(double data rate) version, into December.
The discount to (the old) list prices on Intel processors widened by 7
percentage points to 31% as P4 prices fell sharply over the week. PIII prices
were relatively unchanged, and their discount to list widened a point to 24%.
Like the P4's, AMD processor prices had already anticipated last Monday's
price cut by the company, and overall AMD CPU prices slipped 1% over the
week.
SDRAM QUIET WITH MANY PLAYERS PREFERRING TO STAY OFF THE MARKET
It was a quiet summer week for DRAM, as 128Mb spot prices out of Asia (where
the majority of spot market activity takes place) fell from $1.47 to $1.42 (-
3.4%). Older 64Mbs proved to be more resilient, however, dropping only from
$0.72 to $0.71 (-1.5%). Brokers are saying that demand in China, which has
been relatively strong compared to other markets to date, slowed last week.
They quickly cautioned that it is still too early to know if this is a trend
or a new development. PC data out of China lately has been somewhat mixed. In
terms of price action, day-to-day fluctuations of a few cents are commonplace
these days as the market awaits more concrete data points on the demand side.
Most players prefer to stay off the sideline and overall volumes have
therefore remained rather thin. On the other hand, RDRAM volumes picked up
last week ahead of the Intel price cuts. Prices fell by about 2% to $35-37 (a
2.8x premium over SDRAM) for a 128Mbyte module.
FLASH PRICES AT THE HIGH-END (DENSITY) DECLINE, TRADING SLOW
Spot prices for Flash have remained stable in most densities with price
declines this week generally centered around 32Mbs (down from $7.25 to $6.75,
-6.9%) and 8Mbs (down from $4.75 to $4.63, -2.6%) parts. After falling a
sharp 30% last week, 16Mbs took a breather and stayed flat this week at
$3.32. As mentioned, others including 4Mbs and 1Mbs, were unchanged at $1.75
and $1.63, respectively. Meanwhile, Flash trading activity has been slow,
with brokers saying that buyers have not been sighted in any great number
this week as the month is winding down to a close. There is market chatter
that we could see another 10-15% price decline in NAND (used in data storage)
and perhaps 15-18% in NOR (code storage) in coming weeks. |
