More Bad News for Semis: Slowing Chinese Mobile Phone Sales (RFMD, SLAB, SWKS)

Semiconductor revenues have been strong, in large part due to strong mobile phone sales driven by China and India. Now it looks like the Chinese market, which is not very transparent and thus difficult to forecast, may be slowing.

According to the Barrons blog linked above,

In recent days, evidence has begun to accumulate of some slowing in global cell phone sales, especially in China. For instance, the most excellent Asian IT news site DigiTimes reported Sunday that both BenQ and Compal Communications see slow growth in handsets in the current quarter.

And now the Street is getting worried. Several new reports from Citigroup touch on the issue this morning. Daryl Armstrong, who covers wireless telecom equipment, says that while “the Chinese handset market is healthy in general…we are seeing some inventories build up for slow-selling models, especially some low-end products from smaller manufacturers.” He blames this on “the growing number of models available onthe market, shortened product cycles, and increased demand for phones with more advanced features.”

Craig Ellis, the specialty semiconductor analyst at Citi, has his own take on all of this today, noting that “signs of handset component order and inventory risk are not new, but have become increasingly frequent.” He concludes that market share shift to high-end handset companies like Motorola (MOT) and Nokia (NOK) is disurpting the supply chain and he notes that there is risk of slowing handset sales, though he insists there hasn’t been any yet.

Nonetheless, Ellis slashed his estimates for a bunch of component providers to the cell phone business, including Silicon Laboratories (SLAB), Skyworks Solutions (SWKS) and RF Microdevices (RFMD). In the case of Silicon Labs, he cut his 2007 outlook to $1.90 a share from $2.21, and trimmed his price target to $46 from $58. He made smaller but similar trims in his forecasts for Skyworks and RF.

We have been pointing out for some time that semiconductor supply is outpacing demand. Recently capacity has been tight, but as the new supply comes on and sales in overseas markets slow down, even more price cuts should be expected.

SLAB-RFMD-SWKS 1-yr comparison chart: