Semiconductors . . . NVIDIA estimates cut at Thomas Weisel. The firm cuts their 2004-05 estimates below consensus, citing the following factors: 1) no improvement in biz trends since their Aug downgrade, 2) neck-and-neck competition vs ATI Tech could lead to price and margin erosion in 2004, 3) accelerating secular shift to notebooks does not favor NVDA, 4) sales of Xbox-related chipsets are expected to peak in Q3 (Oct) and Xbox chip sales in 4th quarter may be somewhat weaker than previously modeled, 5) TSM maintained high utilization at leading edge geometries, resulting in ongoing firm pricing and long lead times that work against Nvidia, 6) rising inventories.
Christopher Danely at J.P. Morgan upgraded Advanced Micro Devices to "neutral" from "underweight," citing evidence in Asia that demand for flash memory, used in cell phones, has been "much stronger than expected.". Danely noted that flash memory prices have stabilized for the first time in three years, and could increase in the first quarter of 2004, due to expectations of a shortage in the fourth quarter.
Expect the majority of September Quarter results to be solid, coming in at or slightly better than expectations. Visibility remains limited, but seasonal bookings strength in 3rd quarter is likely to support further seasonal strength for the remainder of the calendar year. End market demand is seasonally strong with desktop and notebook PC component orders healthy and wireless snapping back from a 2nd quarter lull. Consumer, Medical, and Military—all of which are smaller markets—have also been areas of strength. Expect book-to-bill ratios to be just over 1.0 and order growth rates to be in the low single digits as companies report. Also expect management teams to be optimistic about prospects for recovery. While business is improving, believe that we are currently in a period of seasonal, not cyclical, strength and that stocks are trading slightly ahead of fundamentals. However, there are signs that industry fundamentals are improving, albeit gradually. For the first time in several years, there are availability issues for semiconductor products. Heading into reporting season, Fairchild, Intersil, and Micrel are best positioned to benefit from order improvement as well as restructuring, which increases the potential for upward earnings revisions. Also believe that business is very strong at Linear Tech, which could allow the company to meet or beat expectations for the next few quarters.
GoldmanSachs almost doubled its forecast for industry spending on chip equipment next year.
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