UBSW: Semiconductors: End Market Trends: Orders Up, Inventory Do
2002-02-08 08:06 (New York)
UBS Warburg February 8, 2002
Semiconductors: End Market Trends: Orders Up, Inventory Down
Inventory liquidation sets the stage for future component demand
The Department of Commerce released its monthly Preliminary Report on Durable
Goods on February 5 for the month of December. Inventories continued to trend
down, across the three categories that we track: semiconductors, computing and
communications equipment segments. On a three-month rolling basis, orders were
up and shipments increased for computing and communications, but semiconductor
shipments declined from November. Shipments of computing equipment showed
the strongest recovery, with 8%+ increase since October.
Athough backward looking, the data does show, on an aggregate basis, that
inventories continue to trend downward while new orders and shipments are
modestly improving. While 1Q02 visibility is limited, the significant
reduction in computing and communincation equipment inventory is encouraging.
Our UBS Warburg Semiconductor Leading Indicator (SLI) was up for the second
consecutive month, following a U-shape bottom that lasted for most of 2001.
This move in the SLI signals a turn in semiconductor fundamentals should
follow in six to nine months, consistent with our second half-2002 recovery
thesis.
Highlights
Inventory Down. December Inventories continued to trend down, across the
three categories that we track: semiconductors, computing and communications
equipment segments. Inventories in computing equipment hit a ten year low
while inventory in the communication equipment sector declined to the levels
of 1995.
End-market Shipments Up. December Shipments increased modestly for
communications (+5.8%) and computing equipment (+5.7%), while semiconductor
shipments declined slightly (2.6%) on a three-month rolling basis.
End-market Orders Up. Orders accelerated for communications (+15.5%) and
computing equipment (+9.1%), but retracted for semiconductors (6.3%).
SLI Up. Our UBS Warburg propriety Semiconductor Leading Indicator was up
for the second consecutive month. Our SLI leads global semiconductor sales
(SIA IC shipments) by roughly six to nine months based on a turn in end-market
orders and reduced inventory.
With the earnings season for many technology-related companies behind us, the
Department of Commerce data are for the most part backwards looking. However,
we think it is useful for investors to look at the aggregate data as a
resource to evaluate broader industry trends across the different segments of
the technology food chain.
(full note attached) |
