Posting fool that I am.
Something to read about. Analysts agree that the second half of 1998 and 1999 will be
good for Semi group. Here is CS First Boston's analyst's comment.
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08:35am EDT 4-Jun-98 Credit Suisse First Boston (Geraghty, Jack (212) 325-308
AM Call: Electronics/Semiconductor Industry Forecast FBC
CREDIT SUISSE FIRST BOSTON CORPORATION
Equity Research-Americas
Industry: Electronics/Semiconductor
John M. Geraghty, C.F.A. 212/325-3085 john.geraghty@csfb.com
Harry H. Sun 212/325-7891 harry.sun@csfb.com
Semiconductor Industry Forecast
The Semiconductor Industry Association (SIA) released its semi-
annual forecast for the semiconductor industry on June 3 after
the market closed. The previous forecast was for 16.8% growth
for 1998, a total that was clearly out of touch with current
trends in the market. Their latest forecast is for a decline
of 1.8%. We have adjusted our forecast, which now shows 0.5%
growth which we believe will probably be close to the current
consensus. We believe the current weakness in the
semiconductor group is now reflecting this weaker consensus.
We believe better results later in the second half of the year
will lead to improved performance for this group as the year
progresses.
Viewpoint
The Semiconductor Industry Association (SIA) released its semi-
annual forecast for the semiconductor industry on June 3 after
the market closed. The previous forecast was for 16.8% growth
for 1998, a total that was clearly out of touch with current
trends in the market. Their latest forecast is for a decline
of 1.8%. This reflects the current aggressive pricing and
lower unit growth currently taking place in the industry.
Our forecast had been for 3% growth this year, but we had
commented that the forecast was gravitating toward 0%. We
have adjusted our forecast, which now shows 0.5% growth which
we believe will probably be close to the current consensus.
In the near term, major OEMs are continuing to reduce their
inventory positions. This means that the industry book-to-
bill ratio is probably slightly below 1.0 in the second
quarter to-date. We would expect the month of June to follow
these same trends unless final demand changes dramatically, an
event we deem highly unlikely.
If OEM inventory goals are met in the second quarter, order
activity may begin to increase back towards the current rate
of consumption. This will be a slow process and probably take
most of the third quarter to accomplish. By the fourth
quarter, we would expect that new product offerings (DVD) and
upgrades to Windows 98 would stimulate consumer demand for the
Christmas selling season. Foreign markets are still a major
variable, especially the Far East. We are not expecting any
major improvement, but neither are we expecting significant
deterioration.
The semiconductor group continues to act poorly in the face of
these continued slowing announcements. We would expect second
quarter EPS results to be at the lower end of consensus
ranges. Since many companies gave conservative guidance for
this quarter, we do not expect a major series of pre-
announcements of EPS shortfalls.
We believe we are now approaching the point where investors
may doubt a strong semiconductor recovery in 1999 since the
current year will be essentially flat. Current availability
of parts is widespread and pricing is aggressive. There is no
need to build inventory and, as previously noted, every reason
to decrease inventory. We believe that there may be another
round of capital equipment reductions if second quarter EPS
results are sluggish, as they show every indication of being.
This would probably begin the process of bottoming both the
semiconductor and capital equipment groups, since little
optimism would remain. The timing of such events is always
hard to call, but we believe that the industry will be showing
some improvement by the fourth quarter. If lead times, which
are essentially off the shelf, begin to show the slightest
increase, order patterns could change rather sharply since
inventory levels will be quite low and OEMs may begin to be
concerned about adequate inventory for production schedules.
If this is the case and we believe it is, we would rather be
buying the dips than selling the rallies. That continues to
be our stance. |
