More from CSFB (today's "Tech Daily"):
Semiconductor Devices Market Weight M.Masdea
CSFB Semiconductor Conference Day 1:Cyclical Strength
•The biggest surprise from the conference was the consistent and confident view from nearly all companies that we are early to mid cycle. This is a stark contrast to the stocks, which are already embedding the downturn. While finding a management team that isn't inherently bullish is a rarity, the level of conviction coming from the management teams was striking.
•Could it Be? Yes, it is Possible. If history were a good indicator, then we'd say there is no way we are early to mid cycle. However, a number of factors are emerging that suggest the cycle could look different than past cycles. Given where we are in the length of the cycle (31 months of improving units vs. average cycle of 24), one would expect to see rapid expansion in lead-times, inventory refill (panic buying, double ordering), aggressive demand spikes, and rapid capacity additions. So how is this cycle looking different? Companies are managing capacity to keep lead-times stable, which is discouraging panic buying or double ordering (demand spike). This is evidenced by the near all-time lows in inventories (no matter how you slice the data) and lack of inventory refill. On the supply side, semiconductor companies are "once bitten twice shy" and are avoiding ramping capacity to drive near-term revenue at the expensing of heavy depreciation/fixed-costs in the down turn.
•Low Beta Cycle. So what does this all mean? If semiconductor companies can successfully manage their businesses as
described in the bullet above, we could see a "lower beta" cycle than expected. That means our forecast for 28% revenue
growth in 2004 and a 2% decline in 2005 could end up looking more like 22-24% growth in 2004 and 5-10% in 2005.
Needless to say, if that were the case it becomes very hard not to own the stocks. It does potentially take some of the
whipsaw cyclical impact out of key leveraged names and valuations may adjust (lower peaks, higher troughs), but trough earnings will be higher and current valuations would look very appealing. However, we would continue to note that panic buying in the coming quarters could lead to binge capacity builds, as it has in past cycles.
•Near-Term Strong. June quarters remain consistently strong, with growing backlog providing improving visibility into 2H04. A combination of stable to stretching lead-times, tight utilization and stable lean inventories positions the industry for continued cyclical strength. Our coverage companies indicated that customers were most focused on availability of product, providing a strong backdrop for continued growth and firm pricing.
•Seasonal 2Q for PCs, Broad Strength into 2H04. Companies consistently cited a seasonal 2Q for PCs and a gradual
communications recovery. Broad end market demand remains strong and positions the industry well for a strong 2H04
(especially in computing and consumer). Many companies with longer lead-times are already seeing back-to-school demand,
supporting our positive near-term cyclical outlook. |
