Semi Market in general
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A Recap of Fundamentals — While the past 5 days seemed like an eternity, of
course semiconductor fundamentals likely changed little in this short period.
Having just returned from Citi’s technology conference and from conducting
channel checks in Asia, we reiterate our view that the marginal direction of
semiconductor consensus estimates is apt to be down. We remind investors
that PC data points have been softening (underscored by Dell’s preannouncement).
And while data points in China handsets have been positive
ahead of the Golden Week holiday, other low-end handset markets have been
soft (underscored by Nokia’s pre-announcement).
? Areas of Greatest Confidence — While estimates are generally at risk, our
greatest long-term (2009) confidence lies with Qualcomm and Altera. We
continue to view Qualcomm’s position in 3G chipsets as improving, a point
echoed by LG. We are encouraged by the growth in smartphones, although we
recognize the potential for a high-end phone price war in 2H08. We also feel
confident in our positive view of Altera. Infrastructure projects in China and
Japan present significant opportunities for Altera, supported by upside
potential for gross and operating margins. Recent press suggests Altera has
increased pricing and is showing signs of tightness in recent weeks.
? Memory Bears Watching — We downgraded DRAM names in light of
dramatically worsening conditions in September. Indeed this has manifested
to such a degree that 8” capacity is now being decommissioned by Hynix and
Powerchip. Meanwhile, cash balances are sufficiently low as to put Promos
and Powerchip at significant business risk. We expect capital spending by
major DRAM makers Samsung and Hynix to fall at least 40% in 2009,
reflecting these dire conditions. While we are loathe to upgrade DRAM names
in such a poor environment and in light of significant macro uncertainty, with
supply conditions tightening so aggressively, we aknowledge that low-valuation
DRAM names bear watching.
Credit Examination — In the body of our note, we list the credit liabilities of
semiconductor companies under our coverage. We note that AMD, SPSN,
IFXGn.DE, and QI all have debt coming due in the next 15 months. In each
instance, we point out that an already difficult financial position is
compromised by the current credit market. We also include interest coverage
data for each company under our coverage, noting that AMD, MU, and QI fall
at the bottom of the list. Despite historically low valuations (which keep us
neutral), we advise investors to steer clear of these names in light of the
current market difficulties.
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BUGGI |
