|Improved Semi Outlook Means the Chips Won't Be Down for Long|
Levine (ChangeWave Alliance) submits: Semiconductor manufacturers are expected to deliver faster and better chip performance in smaller packages every year. The current drumbeat of progress is driven by a mature industry that will generate a staggering $300 billion of revenue in 2008.
With that maturity, however, comes fierce competition at all levels. The chip market share battles are brutal, the margins tight, and those companies that best control costs and manage inventories and pricing tend to win out.
In mid-June, the Semiconductor Industry Association [SIA] cut its 2007 global sales forecast for microchips to a measly 1.8% growth rate -- down from prior estimates of 10%. Despite strength in such end markets as PCs, music players, cell phones and digital cameras, the SIA pointed to "price attrition" as the main culprit behind lower projected growth.
So how do analysts reconcile these differing indicators to know if chip companies will be up or down for the second half of 2007?
We turned to our ChangeWave Alliance's Semiconductor Industry group members in June to see what they had to say as part of our quarterly corporate sales survey. Overall, the survey results contained encouraging signs that the outlook for chip manufacturers is brightening -- but the semi equipment sector is continuing to experience pain.
The devil's in the details, however, so let's briefly compare what we've learned from our chip manufacturing members versus their semi-equipment counterparts.
Chip Manufacturers -- Visibility Improves
Second Quarter 2007: 25% of respondents, who work in the semi manufacturing industry, reported their company came in above plan for Q2 2007, a four-point improvement from our previous survey.
But when we asked chip manufacturing respondents about their sales pipeline projections for the third quarter, a more exciting picture emerged.
Improved Third-Quarter Visibility: By nearly a 4-to-1 margin, industry members said third-quarter sales for chip manufacturers will come in above plan -- a bullish sign.
More Good News -- Chip Inventory Levels Dropping: Chip inventory levels are in the healthiest shape we've seen since December 2005, with 46% of those surveyed who said their company decreased product inventories in the second quarter -- a very impressive 19-point improvement. Contrast these findings with the far bleaker picture emerging from the semi-equipment sector.
Semiconductor Equipment -- Still Feeling the Pain
Second Quarter 2007: 41% of semi-equipment respondents said their company sales came in below plan for Q2 2007, more than double the previous quarter and the worst showing in nearly two years.
Third-Quarter Visibility: Going forward, the outlook for semi equipment is better than we found in our previous survey in March, but far below the bullish 4-to-1 findings reported above for chip manufacturers.
A total of 19% of semi-equipment respondents projected their company will come in above plan for the third quarter, while 19% say they'll come in below plan.
Bottom Line: The survey results clearly showed the outlook for chip manufacturers to be brightening. Expectations of a significant boost in third quarter chip sales growth, coupled with relatively low inventory levels, are a cause for celebration among semi investors.
But for the semi-equipment sector, our survey results said it will take a lot longer for things to get rolling. The second quarter was painful for equipment manufacturers, and the third-quarter outlook, while improving, still remains tight.
We'll continue to keep you informed of the latest semiconductor industry developments, as reported to us by our ChangeWave Alliance semiconductor industry members. Stay tuned.