The long awaited upswing in the semiconductor industry
by: Telecom_Exec 4068 of 4069
The long awaited upswing in the semiconductor industry appears to be well underway. Is it too late to catch a ride on the Semiconductor Express? We don't think so.
Paine Webber reported last week that semiconductor shipments rose 7% in January, on a year-over-year basis, to $10.2 billion, with particular strength coming out of the Asia/Pacific region where sales surged 22% in dollar terms.
Perhaps most notable is the resurgence in the DRAM business where unit shipments recorded their third consecutive year-over-year gain, rising 25.6% to $1.53 billion. Micron Technology's (NYSE: MU) better than expected second quarter reflects that rebound in the DRAM market.
Although DRAM pricing contracted slightly in February, production has been abnormally high due to what Prudential calls a 'clearing up of the back-end testing bottleneck', which essentially entails orders that had been delayed from final testing requirements. Prudential expects sequential unit production to slow slightly, which should help mitigate some of the pricing pressure.
Another positive development for the industry is a rebound in chip making equipment. Sales figures for that industry tend to lag order numbers for up to six months. Results for January show that equipment sales fell 44% from the prior year, but the rate of decline eased for the second straight month, suggesting that the industry is rebounding from a trough reached in November.
Book-to-bill for capital equipment in February came in at 1.17 with orders remaining flat for the first time in five months which appears to be a stabilization from four months of steady booking growth, according to Semiconductor Equipment and Material International President Stanley Myers. February's result is an improvement from January's revised 1.12 ratio, as well as the 0.96 reported in December. Trends suggest that the semiconductor industry is setting the stage for a prolonged upswing.
At this point it seems that concerns over slowing PC sales are keeping pressure on valuations, as fundamentals of the major chipmakers and equipment suppliers showed marked improvement in the latest quarter. Investors need to look past these short-term concerns, and concentrate on the positive industry trends, which show that a prolonged recovery is underway.
Feedback from the analytic community suggests that PC issues are more seasonal than secular, and when the market works through this investors will view this time as having been a great buying opportunity.
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