Mike
seems the leader is cutting later than expected by smaller amount than
expected; could it be that the leader is hurting as well?
Regards
-Albert
06:37am EST 26-Nov-01 Salomon Smith Barney (Jonathan Joseph +1-415-951-1887) AM
The Semiconductor Beat
SALOMON SMITH BARNEY Industry Note
Semiconductors
The Semiconductor Beat
November 26, 2001 SUMMARY
* A couple of weeks ago, Intel released its newest
Jonathan Joseph processor roadmap, which puts the next price cut on
+1-415-951-1887 Jan. 27, three months rather than two months after
jonathan.joseph@ssmb.com the last price cut. In addition, the average trim
Ramesh Misra will be only 14%, one of the mildest cuts in memory,
+1-415-951-1883 and a plus for microprocessor pricing.
* Gray market prices last week on Intel processors
Dunham Winoto slipped a point to a 13% discount to list, and
+1-415-951-1875 P-IIIs also slipped a point to 18%. AMD processor
prices were down 2% over the week.
* The DRAM market retraced some of its recent gains,
with spot market prices for 128Mbs falling to $1.37
(-$0.16, -10%) and 64Mbs to $0.72 (-8%) on the week.
In contrast, DDR trading was brisk and prices rose
about 8% on the week, in anticipation of Intel's new
845-D chipset; RDRAM was flat.
* Flash was flat last week with prices unchanged
across all densities. 32Mbs traded at $9.94, 16Mbs
at $5.97, and low-end 4Mbs were selling for $1.40.
OPINION: INTEL PRICES SHOULD RISE IN Q1; SICAS AND SIA DATA BOTTOMING
"From too much love of living, from hope and fear set free, we thank with brief
thanksgiving, whatever gods may be, that no man lives forever, that dead men
rise up never; that even the weariest river, runs somewhere safe to sea."
Algernon Charles Swinburne, 19th c. English poet, writing about a bittersweet
Thanksgiving 2001
We proposed several months ago that the concrete result of the success of
Intel's (INTC-$31, 1M) "Breakaway" strategy--to keep a meaningful speed lead
over AMD (AMD-$13, 1S) at all times--would be rising blended average prices for
the leading microprocessor maker. We believe the primary reasons Intel's
average prices have fallen about 25% in the last 18 months are two: a slower
personal computer market and increased competition from AMD. Those two, we
believe, are reversing. Hopefully, we are in the early stages of a recovery in
the PC market. And AMD is able to offer only a 1.6GHz processor (the Athlon
XP1900, which is, by the way, a very popular part).
With the release of Intel's latest "Roadmap" to customers a couple of weeks
ago, it is becoming clear just how Intel plans to move the market now that it
once again has unchallenged dominance (monopoly is such a messy term) in the
field, once again (sic.). The news is good for investors in Intel's stock.
1) The next round of scheduled price cuts will be Jan. 27, a full three months
after the Oct. 28 prices cuts, which were only two months after the Aug. 26
price "moves." It is hard to remember precisely how many "scheduled" price
moves the company had in 1H 2001, but it seemed like we were hearing of price
cuts almost every month. Do not look for accelerated price cuts in 2002.
2) Average desktop processor prices will be cut by only 14%, compared to a 23%
reduction in October and a 40% reduction in August. It was the August actions
that helped spur demand for the P4, which was lagging company expectations. Now
the P4 is running very tight, with the company likely to upside our 12 million
P4 unit forecast for Q4 (we are forecasting overall units of about 30.4
million).
3) As we noted about a month ago, the company pushed out the introduction of
the 2.2GHz Northwood from December to January. It did that not because of
manufacturing problems, but because Intel does need to further saturate the
market with GHz to pursue a preferential pricing strategy vis. a vis. AMD. In
addition, it will be introducing a 2.5GHz P4 by Q3 next year, marginally more
powerful than the 2.4GHz part planned for that quarter. Accelerated speed plans
(sans short-term marketing issues, like the push-out of the 2.2GHz part),
usually mean manufacturing yields are running ahead of expectations, also a
plus.
Later this week, the Semiconductor Industry Association (through the WSTS) will
report global semi shipments for the month of October. As we have written
before, we expect October 3-mos. rolling average shipments to slip slightly
from September's -45% yoy to
-46% (+/- 2 points), and should define the trough for this cyclical downturn.
We believe that the events of Sept. 11th were responsible for pushing out the
bottom by one month, or so.
While we may have to wait until the November numbers are released to officially
confirm a bottom, there are plenty reasons to expect a relative up-tick began
this month. For one, the comparisons rapidly get easier in November, as semi
shipments started falling precipitously after October 2000. Two, the anecdotal
information is getting better: both Intel and AMD are hitting, or exceeding
their own plans. A beaten up DRAM sector enjoyed a meaningful price
appreciation since hitting lows in late October. And DDR-DRAM, which is holding
at twice the price of SDRAM in the spot market, will likely double in shipments
in November from October at some manufacturers.
Three, factory utilization rates have bottomed. According to SICAS
(Semiconductor International Capacity Statistics), global semiconductor fab
utilization dropped to 64.2% in Q3 down from 73.1% in Q2 and a peak of 96.4% a
year ago. This number is roughly in-line with the Federal Reserve Board's
estimate of U.S. semiconductor capacity utilization of 61.1% in Q3. In the
month of October, according to the Fed, utilization dropped some more to 59.6%.
But a large number of key players, including Intel, Taiwan Semiconductor (TSM-
$16, 1M), and UMC (UMC-$7, 1M), are reporting higher utilization rates, which
will almost certainly lead to improving data in coming months. Leading-edge
fabs generally have higher utilization rates, for instance those producing sub-
0.2 micron wafers ran at 79% utilization in the quarter, reports SICAS, while
those at the older 0.3-0.4 micron processes were at 52.5%. Taiwan Semi, has
recently reported greater than anticipated demand on its sub-0.18 micron wafers
from several key PC-component customers, and as a result expects its own
utilization levels for leading-edge processes to "comfortably meet" the 80%
range guidance, previously given for this quarter.
Not to be forgotten in our support that a fundamental bottom was set in Q3 is
the often iconoclastic, but usually insightful, input from ST Micro's (STM-$35,
1H) economist, Jean-Philippe Dauvin. Monsieur Dauvin on Friday went on record
predicting semiconductor industry shipments to be flat overall for next year
(we are forecasting about 4% growth), but show "double digit" growth by Q4. He
also predicts an even stronger market recovery in 2003 with shipments up in the
high 20% range. Up and to the right.
PROCESSOR PRICES DOWN SLIGHTLY; 1.5GHZ PARTS VERY TIGHT
In a holiday-shortened week, Intel processor prices slipped to a 13% discount
to list from 12% in the week before. The exception was the 1.5GHz P4, which
rose about $10 (7.5%) on the week, largely driven by demand out of Asia-
Pacific. The discount to list on P-IIIs also widened by a point to 18%. AMD
processor prices fell 2% over the week, largely the result of price drops on
the recently introduced Athlon XP family. In general, prices of the XP family
have been holding up quite well-- for example the Athlon XP 1900 was trading at
$242, or only a 9% discount to Intel's P4 1.9GHz processor, in spite of running
at only 1.6 GHz. Some of our disti contacts report that the XP family accounts
for almost 90% of their AMD CPU sales already, which should lend downside
support to pricing for the company this quarter.
SDRAM LOWER, BUT DDR HIGHER AND PICKING UP IN INTEREST
The SDRAM market appears to be retracing some of its recent gains, with spot
market prices for 128Mbs falling to $1.37 ( down $0.16 or10%) and 64Mbs to
$0.72 (-8%) on the week. A week ago Monday, prices in most markets started in
the $1.50 range for 128Mb components but drifted steadily lower through the
week. Trading was lighter than usual with a number of brokers closed for
holidays here in the U.S. but overseas brokers also reported light trading
volumes with most buyers apparently staying off the market. One possible reason
could be that now the Christmas build is almost over, demand may slow and
prices could head lower once again. Indeed, a few brokers received lower than
average bids from some of their customers, which suggests that those buyers who
can hold off buying are betting (and therefore waiting) for lower prices.
Meanwhile, the market action was pretty impressive for DDR-DRAM, which should
become the primary memory by mid-2002, as Intel converts all of its P4 family
over to DDR-capable chipsets. A combination of fairly brisk demand (to support
shipments of i845-D motherboards) and low supply conspired to keep DDR prices
high, with 256MByte modules rising about 8% on the week to the $42-45 range vs.
$25-28 for SDRAM. The premium is somewhat less on lower density modules.
Sources told us that high density modules (i.e. 256MB and 512MB) were in a
short supply and especially "hot", with some suppliers expecting DDR shipments
to be up as high as 200% mom in November and another 60% in December. Rambus
DRAM (R-DRAM) prices, on the other hand, were relatively unchanged this week at
$37-40 for a 128MB module.
NO CHANGE IN FLASH PRICES
The Flash market was flat this week with prices unchanged for all densities.
32Mbs traded at $9.94, with 16Mbs at $5.97 and 8Mbs at $3.34. On the low-end,
4Mbs and 1Mbs were selling for $1.40 and $1.15, also the same as last week.
Brokers said trading was "relaxed" and parts quite plentiful in the channel. On
its mid-quarter update on Tuesday, Triquint (TQNT-$17, NR), a handset
components supplier, said it expects to hit the lower-end of its prior guidance
as turns business is coming in slower than forecast and OEMs are delaying some
orders to further assess actual demand during this holiday season. According to
SSB's wireless analyst, handset suppliers, which consume about 60-65% of total
Flash production, are expected to ship about 110 million units this quarter, up
17% from last quarter. |
