By Carlos Guillen
So far, I continue to see signs that the semiconductor capital equipment industry will demonstrate strong revenue growth in 2010. Revenues from main players in this industry are coming in better than expected and forecasts are also very encouraging. In addition, data from All American Semiconductor (SEMI) also indicated that billings did not change its upward momentum; however, it appears that industry concern about a slowdown in consumer PC markets are causing many memory makers to take a cautious stance in their investment plans during the coming year.
Nonetheless, I still see growth coming from opportunities that the new tablets and smart-phones are generating, particularly when it comes to NAND Flash memory. Transitions to lower node technology should also serve to fuel demand for semiconductor equipment investments. Moreover, demand from foundry and logic should still continue as utilizations rates remain rather high. While the PC consumer has pulled back, I still see investment from the corporate sector in 2011.
The trailing three-month average billings in September totaled $1.58 billion. This monthly result increased approximately 1.33 percent from the level achieved in the prior month and increased a whopping 143 percent from the year-ago level. Although, billings have been ramping up consistently, they are now reaching levels comparable to those achieved in the fall 2007, when the great recession was about to begin. Nonetheless the trend has been encouraging, and I expect that American billings in 2010 will total $15.6 billion, increasing 119 percent from the $7.13 billion achieved in 2009.
On a negative note, it was concerning that bookings during September took a rather large step down. While billings continued to ramp higher, the three month average bookings in September decreased by 11.0 percent to $1.62 billion, after decreasing sequentially by 1.12 percent in August. It is apparent that chip manufactures took a cautious stance and decided to slow investment plans. While this downward step in bookings will likely slow billings growth, I believe the effects of this should be felt in early 2011 and will not affect billings for 2010.
It was encouraging that the overall book-to-bill ratio continued at above parity for the fifteenth consecutive month at 1.03, demonstrating that demand is still a bit stronger than supply. However, it should be noted that this ratio actually decreased from the prior month, reflecting the fact that bookings declined while billings increased.
Taking a look at the top-line results from some of the semiconductor equipment industry's main players, I can observe encouraging signs; that is, that so far they have been delivering better than expected results. In fact, ASML Holdings NV (ASML) had forecasted revenue to be at roughly EUR 1.10 billion in the September quarter, but instead the company generated revenue of EUR 1.18 billion, which sequentially increased by 10.3 percent, beating the Street's consensus estimate of EUR 1.13 billion.
Moreover, ASML's revenue forecast for the December quarter was also encouraging as it is expected to sequentially increase to EUR 1.30 billion, which represents another 10 percent plus of growth. Strong short term demand for the company's capital equipment is indicating that bookings should continue increasing sequentially in the December quarter.
In a similar manner, Lam Research (LRCX) had forecasted revenue to be between $775 million and $805 million; however, it delivered actual revenue of $806 million, which sequentially increased by 15.9 percent and beat the Streetfs estimate of $794 million. The company's revenue forecast was also strong; management forecasted revenue to be in the range of $805 million and $845 million, which has a midpoint that was higher than the Street's estimate of $813 million.
So far, I continue to see signs that the semiconductor capital equipment industry will demonstrate strong revenue growth in 2010; data from SEMI and results from ASML and Lam Research are indicating this. I believe that despite weak PC consumption, demand for capital equipment will continue to ramp higher till the end of this year and into 2011, mainly driven by capacity investments in memory. Capacity investments in Logic and Foundry should also increase as utilization rates are running at elevated levels. While investments in technology upgrades have been going on for some time now, I think this will continue, but at a slower pace as I reach the end of 2010.
While I certainly see that PC unit sales growth will be less than previously expected in the US and in Europe, it will still be growing at a significant pace, mainly driven by sales in emerging markets and in China.
Looking ahead, I believe that the softness in PC demand will not be enough to derail overall semiconductor industry growth for the full year as demand for semiconductors continues to grow into a wider range of products that go beyond computers, including smart-phones and new tablet designs.
So, although I am cautious, I still believe the semiconductor revenue momentum will continue, which should bode well for semiconductor equipment makers.
Disclosure: No positions