Wireless Applications Showing Greatest Promise in the Semiconductor Space, According to Industry Analyst
On 1:35 pm EDT, Wednesday September 16, 2009
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67 WALL STREET, New York - September 16, 2009 - The Wall Street Transcript has just published its Semiconductors, Semiconductor Equipment, and Software Report offering a timely review of the sector to serious investors and industry executives. This 115 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
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Topics covered: DRAM Industry Reorganization -- Semiconductor Supply Chain Status -- Netbook Growth -- LCD TV Growth -- NAND Pricing and Demand -- Micro-Electro-Mechanical Systems (MEMS) Demand Cycle -- Ultra Low Voltage Processors -- Semiconductor Inventory Aging and Type -- Processor Power Developments
Companies include: Intel (INTC); Micron Technology (MU); Microsemi (MSCC); STEC, Inc. (STEC); National Semiconductor (NSM); Texas Instruments (TXN); Taiwan Semiconductor Manufacturing (TSM); ON Semiconductor (ONNN); Intersil (ISIL); Linear Technology Corporation (LLTC); Monolithic Power Systems (MPWR);Advanced Photonix (API); Waytronx Inc. (WYNX); LTX-Credence (LTXC); Mattson Technology Inc. (MTSN); Oclaro, Inc. (OCLR); Silicon Laboratories (SLAB); Microchip Technology, Inc. (MCHP); Cohu, Inc. (COHU); FSI International, Inc. (FSII); Jaco Electronics (JACO); Cadence Design Systems (CDNS); Synopsys (SNPS); Mentor Graphics (MENT); Magma Design Automation (LAVA)
In the following brief excerpt from the 115 page report, Patrick J. Ho discusses the outlook for the sector and for investors.
TWST: Patrick, I gather you cover the equipment side of the semiconductor space.
Mr. Ho: Yes, I'm entirely on the equipment side.
TWST: Is the pickup coming from particular segments?
Mr. Ho: Yes. I think that the biggest pickup is in the wireless area. If you look at companies like Qualcomm (QCOM) or Broadcom (BRCM) on the semi side of the world, that's been a driver at least from the equipment side of things for some of my test players like Teradyne (TER), like Verigy (VRGY). They've seen a pickup there. Also notably with the pickup in wireless, you see in the foundries like Taiwan Semi (TSM) that their business has also picked up, particularly I would say in the last four months or so. So I think that's probably the biggest area of a jump. Now other areas are starting to show some signs of life. I think with the recent earnings season you saw Texas Instruments (TXN) and Linear Technology (LLTC) talk about a small pickup on the analog side. So overall you're starting to see other market segments I think recover along with wireless.
TWST: Have we seen restructuring and consolidation during this?
Mr. Ho: I think we've seen a lot of restructuring and that's going to be a positive for almost every equipment company in terms of their operating models and in terms of how they can drive higher earnings once the next upturn ensues. Now, in terms of how fast they've been able to implement it, I think some companies look much better than others. I think some reacted very quickly as the signs were emerging, say, in 3Q and 4Q of last year. There were a few companies in the equipment space that were really quick to the ball. Notably I'll mention a company like Varian Semiconductor (VSEA) or another company Cymer (CYMI) - I think those two were very quick to the ball in terms of "let's get our overall cost structure reassessed and let's make the moves now as quickly as we can." And I'll say this, Cymer already returned to profitability in the June quarter and I see Varian also getting back to profitability in a relatively short period of time - I wouldn't be surprised to see it before year-end.
TWST: So they've really come to grips with this well, as opposed to past cycles?
Mr. Ho: Yes, and I think, again, it depends on how quickly you react to it and that's why some of these companies will get back to profitability sooner than others. I think every company is taking action. I think some were late to the game and this is going to take them a little bit longer to get their business model fixed versus the ones that took action early.
TWST: Are there any signs of this recovery expanding into other segments yet?
Mr. Ho: As I mentioned before, analog - I think we've started to see some life there and that's partly related to what you are seeing on the wireless side of things. If you look at Intel's recent earnings, they are seeing a modest pickup. I think they've actually called for a full recovery, but conservatively you can get the PC market starting to build and that could be an untapped potential in 2010. So you are starting to see other areas are building strength.
TWST: In general, does the industry have the balance sheet?
Mr. Ho: I think as a whole, yes. You're always going to have a few companies where I would seriously question whether they are going to be long-term viable players. But as a whole, the industry is pretty solid in terms of the balance sheets and in particular, most of the big name companies like an Applied Materials (AMAT) or a KLA-Tencor (KLAC) or a Lam Research (LRCX), they have strong balance sheet that should allow them to weather the storm and actually, probably strengthen their positions coming out of the downturn.
TWST: Are investors interested in this space, given these uncertainties?
Mr. Ho: The interest level, I would say over the last two to three months has dramatically improved. And even though fundamentally we haven't seen what I would call a full-fledged recovery, investors want to be ahead of the game. So you've clearly seen more interest in my space and I don't have the exact numbers in front of me, but for some of the names, including some of the big cap names just in the last two months, you've seen 40% to 50% gains in the stock price in anticipation potentially of a 2010 recovery scenario.
TWST: So they are willing to change their time horizons and make a bet on the longer term?
Mr. Ho: Yes, exactly.
TWST: Let's touch on the two big ones. Why Varian and Lam, what's the appeal?
Mr. Ho: Again, I think in terms of their market share positions, their operating models, their balance sheets, and in terms of the management teams, I would put them above almost everyone else in the equipment space.
TWST: Is there anything else we should touch on?
Mr. Ho: Again, investors are clearly warming up to at least the equipment group, based on what I'm thinking and some of my peers are thinking about 2010.
TWST: And 2010 at this point isn't that far away?
Mr. Ho: It's not that far.
TWST: Thank you. (TJM)
Note: Opinions and recommendations are as of 8/5/09.
PATRICK J. HO Stifel, Nicolaus & Co., Inc. 5956 Sherry Lane Suite 875 Dallas, TX 75225 (214) 647-3509
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 115 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .
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