Well, JPM is stepping up and making either a courageous or a foolhardy call.
It's Official: Chips Have Bottomed
Semiconductor stocks have been rallying on negative preannouncements.
J.P. Morgan
On Oct. 2, the Semiconductor Industry Association announced August monthly sales of $24.2 billion or a month-over-month increase of 3.1%, slightly above our estimate of up 2.0% but below the average August month-over-month increase of 6.1%.
The three-month-rolling average sales for June-August decreased 2.2% year-over-year to $25.0 billion, down from a 1.1% year-over-year decrease for May-July. We are reiterating our view that the semiconductor stocks have bottomed due to our belief that the downside is priced in.
On a month-over-month basis, total semiconductor sales increased 3.1% in August, slightly above our estimate of up 2.0% but below the average August month-over-month increase of 6.1%. Multiple segments exhibited sub-seasonal growth with microprocessors and flash demonstrating the weakest month-over-month results relative to seasonal norms. Total semiconductor sales in August decreased 4.4% year-over-year, down from a 3.8% year-over-year decrease in July. The three-month-rolling average sales for June-August decreased 2.2% year-over-year to $25.0 billion, down from a 1.1% year-over-year decrease for May-July.
Year-over-year unit growth bottomed in July. Units excluding discrete memory increased 1.5% year-over-year in August, above our estimate of a 0.4% year-over-year decrease as it appears unit growth bottomed at negative-0.5% year-over-year in July 2011. On a month-over-month basis, total unit shipments decreased 1.5%, above our estimate of a 4.0% decrease but slightly below the historical month-over-month average of a 0.9% decrease.
We would note semiconductor year-over-year unit growth turned negative in July at minus-0.5%. Our analysis of past cycles indicates that the PHLX Semiconductor Sector (SOX) typically bottoms within three months of the first negative reading in semiconductor year-over-year unit growth.
Average selling prices (ASPs) decreased 3.2% year-over-year in August, below our estimate of down-1.6% year-over-year driven by lower multiple processing units (MPU) and DRAM ASPs.
We are maintaining our 2011 semiconductor sales forecast of 2% year-over-year revenue growth, or $305 billion. We expect units to grow 2% year-over-year and ASPs to remain roughly flat year-over-year.
We believe the reason semiconductor stocks have been rallying on negative preannouncements is that the buy-side expectations are not going down further with the estimate cuts. As a result, we have more confidence semiconductor stocks have bottomed.
During the 2008 recession, the SOX bottomed in November 2008, roughly one to two months after the first round of negative estimate revisions. Despite a second round of estimate cuts in January 2009, semiconductor stocks did not go to new lows.
Investors should buy now ahead of a likely first-quarter 2012 recovery. We believe investors should buy on the weakness as the downside from a potential second round of cuts and a recession is now priced in to semiconductor stocks.
-- Christopher Danely
-- Shaon Baqui
-- Venk Nathamuni
Investors' Soapbox PM | MONDAY, OCTOBER 3, 2011 |
