Monthly Semiconductor Revenue Is Running Out of Steam as the Year Ends

Dec. 5.10 | About: SPDR S&P (XSD)

by Carlos Guillen

As I had expected, semiconductor revenue is showing signs that growth will not continue as the end of 2010 approaches. Nonetheless, semiconductor industry revenue growth has been stronger than expected for the majority of this year in spite of troublesome macroeconomic fundamentals such as persistently high unemployment rates and sluggish consumer spending. I have been rather bullish on semiconductor industry revenue growth up until now, and I still see that the semiconductor industry is on track to meet my 33 percent revenue growth for 2010.

According to SIA data, global semiconductor revenue in October remained sequentially flat at its record high of $26.3 billion, increasing year-over-year by 19.8 percent. Looking at the data from a trailing three month perspective, I calculate that October revenue grew sequentially by 4.28 percent; however, we have to keep in mind that this revenue did run below its seasonal run rate of approximately 8 percent. Nonetheless, given the rumors of a surging inventory buildup and given the fact that PC consumption was less than expected, the four percent growth is certainly encouraging (click to enlarge).

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In essence, the softness in PC demand that was experienced in the third quarter has not been enough to derail overall semiconductor industry growth, as demand for semiconductors continues to grow into a wider range of products that go beyond computers, such as smart-phones, tables, and industrial applications.

Moreover, inventories for the most part appear to be lean. Semiconductor companies have become very quick at correcting inventory issues, particularly since everyone continues to be very concerned about macroeconomic factors. According to my estimates, I still see semiconductor revenue growth of 33 percent in 2010, which implies a 2 percent decline in the December quarter. I should point out that semiconductor revenue during December quarters is usually down by approximately 1 percent, so a two percent decline would be a bit below seasonality.

Looking out further, I expect 2011 will be a year of surprises, positively driven by demand of tablets and smart phones, but negatively affected by PC demand. So far, I still expect to see semiconductor revenue growth in 2011, but only about 3% for the full year.