THE YEAR AHEAD: SEMICONDUCTOR
ML research report 1-13-2004
Outlook Summary
As the semiconductor industry’s recovery continues, predicting the upturn’s duration becomes the primary challenge for 2004. We see clear sailing with increasing YoY growth and improving estimates for the first quarter and into the second. Sustaining the industry’s recovery through the second half will require real pricing power and a real channel rebuild. Could it happen? Very possibly, but we’re going to pay close attention to industry developments as we enter the summer.
Key Trends
The street’s preoccupation with margin gearing and beta should fade during 2004. We foresee a greater emphasis on quality.
Supply chain management will cease to be a theme and turn into a challenge. Semiconductor companies that don’t plan adequately could pay the price this year.
Better demand from industrial and enterprise applications should create opportunities for a different group of semiconductor companies. We like FPGA vendors Altera and Xilinx.
Intel’s undiminished ambitions to be more than a microprocessor company should become much more obvious. Look for an attempt to stake out digital home standards in 2004.
China will be an increasingly important source of demand for integrated circuits, but not nearly as disruptive a competitor as some believe. DRAM manufacturers are the most likely to suffer.
Recommendations
Our favorite stocks for 2004 are Agere, Altera, Intel, Linear Technology, Marvell Technology, Maxim Integrated products, Microchip, National Semiconductor, RF Micro Devices, Semtech, and Xilinx. Readers will notice the bias towards welldiversified, high-margin businesses such as Maxim and category leaders such as Intel and RF Micro Devices. Readers will notice the bias towards well-diversified, highmargin businesses such as Maxim and category leaders such as Intel and RF Micro Devices. We currently have sell ratings on Broadcom and PMC-Sierra. |
