From Albert 3 of 3:
The Semi Beat: CPU Suppliers Upbeat; DRAM Makers Look for Better
5/15/0 9:5 (New York)
SEMIS AMD INTC MU IDTI CY BBRC ADI NSM STM IRF IFX
COM IND CUS
Jonathan Joseph 415-951-1887 (ID 646)
The Semi Beat: CPU Suppliers Upbeat; DRAM Makers Look for Better 2H
Region/Country: CUS
--SUMMARY:----Semiconductors
* AMD and Intel both described a rosy environment for microprocessors for
this year. AMD spoke of faster-than-expected Athlon ramp, while Intel looks
for a banner year (20% growth) for the PC market in general.
* DRAM spot market prices remained pretty stable, in the $6.00-range for
64Mbs. Infineon, Micron and Hyundai are looking for a better market in 2H.
* Specialty memory makers, IDT and Cypress also continue to see a solid
business environment, with some leadtimes stretching and prices rising.
* Suppliers of discretes and analog components to multi-markets are seeing
some of the best business trends in years. This favors broad-based
manufacturers such as National Semi, International Rectifier, Analog
Devices, and Burr-Brown.
--OPINION:------------------------------------------------------------------
Microprocessor manufacturers present rosy outlooks.
During its presentation last Wednesday at the Salomon Smith Barney
Semiconductor Conference, Advanced Micro Devices (AMD, $85 11/16, 1S)
reported a faster-than-expected production ramp out of Dresden and also
better chipset/motherboard support out of Taiwan, providing some upside
to the guidance given only two weeks ago. Previous guidance was for
essentially flat operating profit. Now the company is saying it will meet
and likely exceed Q1 EPS, which includes about $0.10 per share of
one-time gains.
AMD says it can sell every new Athlon it can make, and reiterated it will
increase Athlon unit shipments this quarter to 1.8 million and double
units in each of the next two quarters. Only a few hundred thousand of
the next generation Durons (low-end, formally known as Spitfire) and
Thunderbirds (high end in copper process) will ship this quarter but will
ramp rapidly. The company categorically denied German press reports
(Thunderbird is produced in Dresden) that T-bird is not functioning well
with its chipset.
Because of the mix shift from K6 and "Classic Athlon" to the new product
lines, total units will not likely likely remain flat at about 6.5
million units this quarter and next, increasing in Q4 to 7.5 million
units, by our model. Management reiterated its forecast that it would
ship at least 25 million processors this year, with greater than half of
them Athlons. Given the positive mix, prices should continue to rise
through the year.
In a very high-level presentation, Intel (INTC, $115, 1M) presented a
bullish outlook for 2000 for the PC market in general. The primary demand
drivers are three; 1) continuing expansion of internet traffic, despite
the collapse of the dot-comms. Intel believes we are now entering the
"real new economy," which will be an era of rapidly increased Internet
based business generating an economy of "no-slack" in the whole supply
chain. 2) PC giveaways to employees is a program growing rapidly in
corporate U.S.; Intel is tracking some 60-70 such programs among the
largest U.S. companies. 3) The replacement cycle for PCs has been reduced
from over five years to now under 4 years, shortening the effective life
of the PC. Market researchers, Intel points out, are forecasting greater
than 20% growth in PCs this year, the highest rate of growth since 1994.
The company believes the current processor shortage was the result of its
underforecast of demand resulting from the recovery of the Asian
economies in the past year. Japan and China are now the second and third
largest PC markets. Intel repeated that it expects to improve
microprocessor supply in the next 6-9 months. It has told its U.S. OEMs
that supply will improve by mid-June, which seems a little too soon to
us. We do, however, expect both demand and supply to increase sharply in
the second half, with the market remaining generally tight through the
rest of the year.
Private company Transmeta, gave a very well-attended presentation on its
Crusoe family of microprocessors. The Transmeta approach to the market is
elegant in its simplicity: do some of the code translation work in
software (which the company calls "code morphing software") to add
flexibility (the software has a feedback loop for reducing processor
speed to optimal performance levels), reduce cost (significantly smaller
die size of about 77mm2), and dramatically reduced power (pulling one
watt). The result with be sharply increased battery life across a
universe of wireless Internet browsers and mobile computers. Dave Ditzel,
the RISC pioneer who founded Transmeta five years ago, appears to be
talking with a wide array of Internet appliance makers and seems to be
closing in on likely deals with at least several large notebook computer
makers. Stay tuned for what could be a very exciting year for the company.
DRAM companies uniformly positive on 2H.
Spot market DRAM prices appeared to hold flat on the week at about $6.00,
or slightly better, for 64Mbs. Contract prices are currently at about
$6.00. Most vendors will be pushing for a slight increase in the next
round of negotiations to take place next week, but we would expect
contract prices to hold at this level for now.
As one investor commented, we had at the conference the highest density
of DRAM suppliers in the industry. Certainly, Micron Tech (MU, $60 3/4,
2S), Hyundai Electronics, and Infineon (IFX, $68 5/16, 1H) were
monolithically positive about the demand/supply forecast for the second
half. Output at Micron appears to be running slightly above plan, with
the company increasing forecast unit output this quarter from 15-20% to
25%; we are currently forecasting a 29% increase in bit shipments.
Meanwhile, Infineon will only be adding about half a fab in capacity over
the next 9-12 months as it fills out its current capacity at White Oak.
Its next big expansion will not take place until the company ramps a
300mm (12-inch) fab in Dresden for 256Mb production next year.
Hyundai also gave an excellent presentation giving its view that there
will be a DRAM shortage of about 2% this year, mostly in 2H, followed by
a 6% shortfall in 2001. Reflecting its newfound financial discipline, the
company is seeking to make its business cash-flow positive by $800
million this year, allowing it to pay down further debt. A cash-flow
positive DRAM business, which has been Micron's example for years and
now appears to be the target of both Infineon and Hyundai, is a
sustainable business model, and would imply lower levels of capital
spending and higher levels of profit going forward. Perhaps 25 years of
deficit capital spending, which drove Intel, Texas Instruments, Motorola,
the Japanese, and LG Semi out of the business, is finally coming to an
end. That would be good for DRAM prices.
SRAM and specialty memories remain tight.
Cypress Semi (CY, $49 5/8, 3H) and Integrated Device Tech (IDTI, $43 3/8,
1H) both described solid business environments in their SRAMs and
specialty memories, which include FIFOs and dual-ports. Cypress reported
that lead times are stretching out to 20 weeks, even for strategic
customers, while prices are up 10% over last quarter for some SRAM
products. Management is forecasting the market will to remain tight this
year with supply not catching up to demand before the end of 2001.
Meanwhile, IDT could not be more positive about their specialty memory
and communications business. Demand for these products, which carry hefty
operating margins in the 40-50% range, for years grew at only 15%, or so.
In the last year, growth has accelerated to 40-45% as networking switches
become more complex and require more "main memory" to buffer high speed
signals. These products make up about 38% of IDT sales, and given that
lead times are only a few weeks, there is no incentive for networking
OEMs to build inventory.
Broad based products accelerating.
Multi-market suppliers are also seeing some of the strongest trends
they've experienced in years, with International Rectifier (IRF, $43
9/16, 1H), Burr-Brown (BBRC, $63 15/16, 1H), National Semi (NSM, $53 1/2,
1H), Analog Devices (ADI, 1H) and Fairchild Semi all presenting bullish
outlooks. IRF, we believe, has already made its revenue target for the
quarter, which is slightly above our forecast. The company cited solid
broad-based demand and firm prices; this environment also bodes well for
other MOSFET manufacturers such as Fairchild. In the analog space,
National reported that the May quarter is tracking as expected that the
company's backlog for the first fiscal (August) quarter is shaping up.
Their overall capacity utilization remains about 85%, and lead times
remain about 6 weeks.
Indeed, the most recent SIA data supports the broad-based strength. In
the month of March, analog shipments were up 42% year over year, up from
41% and 39% the two months before. In addition, standard linear was up
63% year over year, flat from February, which was up 64%. SIA also
reported that discretes continue to accelerate, rising 4% in March over
February, and up 31% year over year, versus February and January at 30%
each. |
