March 17, 2009, 5:57 pm
Chips: Inventory Restocking - Or A Real Bottom?
Posted by Eric Savitz
Chip stocks are suddenly on a ferocious tear: the SMH, the semiconductor HOLDRs, have rallied 16% in six days. There’s a spreading view that semiconductor demand may have hit bottom.
But not everyone is convinced.
Auriga USA analyst Daniel Berenbaum this morning asserted in a research note that “the recent rush to call the bottom in semiconductor stocks is based largely on supply-side data that effectively ignores continued deterioration in demand.” Berenbaum thinks the SOX, the widely tracked semiconductor stock index, will eventually return to its November lows in the 170 range. The index closed today at 220.91.
Even Berenbaum concedes that data points from the supply chain are “incrementally positive,” with business in the semiconductor manufacturing chain improving sequentially in both February and March. But he contends that “this increased activity is being driven almost entirely by inventory restocking from low absolute levels, and not a pick-up in demand. ” He notes that there have been shortages in a few categories, in particular power management chips and LCD drivers, but adds that “even here, visibility seems to extend a few weeks at most.” Berenbaum notes that utilization at wafer fabs has picked up, but that one-third of foundry capacity remains idled.
And by the way: Berenbaum also thinks the Street has gotten too bullish, too soon on the semiconductor equipment stocks. He contends that capital intensity in the sector is likely to continue to decline as the memory sector restructures, and that “equipment pricing will likely come under presure as capex becomes even more highly concentrated in the hands of a few big spenders. He believes tool shipment levels will remain depressed through the end of the year, “with hopes fading for a pickup from memory manufacturers.”
Berenbaum writes that Intel (INTC) remains his top short idea; he says the company for the March quarter is tracking about in line with its $7 billion revenue forecast, but he sees another 5% sequential slide in the June quarter, which he notes would be off 30% year over year. Among the equipment stocks, he singles out Applied Materials (AMAT) as “having the potential for further downside.”
Of course, no one was listening to Berenbaum’s bearish take today; Intel shares rose 4.6%; AMAT rose 2.6%. |
