Gottfied/all, don't believe this was posted before. H&Q outlook for Q1/1999 and for the year/1999 in the semiconductor industry dated 12/11/98. Jeff
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Associate : Cristina T. Osmena, (415) 439-3613
Firm: Hambrecht & Quist
Department: Technology
Industry: Semiconductors
Date: 12/11/98
1/2: Semiconductors--Probable Weakness in Q1:99 and Growth Thereafter
* We believe that semiconductor demand may fade at the end of Q4 and early Q1 as
has historically been the case. Although there is little visibility into Q1,
there is reason to believe that demand and supply will be imbalanced.
* Weakness in the semiconductor market, if it occurs, will be driven by
suppliers cranking up production in front of a seasonally slow period. It is
likely that semiconductor production rates are now above end consumption as
channel inventory is being replenished.
* Over the last quarter, the industry has experienced a strengthening demand for
components--Intel pre-announced positive surprises in both Q3 and Q4. We have
also seen utilization rates increase at Intel as it can not build product fast
enough to satisfy demand. Certain configurations of DRAMs are on allocation,
and pricing for DRAMs are up 25-30% from their July lows. There is a renewed
trickle of capital spending and the resumption of planning for the addition of
new capacity. We believe that this is likely to be as good as it gets in the
near term. However, the current forecasts are being made with rulers and are
extrapolating a sequentially up Q1.
* The compression of the electronic pipeline has pretty much run its course. As
supply and demand tighten in the 2nd half of 1999, we would expect lead times to
stretch, manufacturing inefficiencies to emerge, and the pipeline to expand once
again. This makes us more optimistic for 1999 as a whole.
* In the near term, however, we believe there is risk in the semiconductor and
equipment sector due to an increased probability of a slower Q1 and more
optimistic Wall Street expectations. We would not be adding to positions in the
sector and would use the current strength to lighten up on positions for more
aggressive trading oriented accounts. However, we would strongly recommend
investors aggressively buy weakness in Q1 as we are nearing the beginning of a
2-3 year up cycle in the semiconductor industry.>>
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