Semiconductor Revenues Not Cracking

by: Wall Street Strategies

By Carlos Guillen

Despite the catastrophe that occurred in Japan, I continue to see a strong year for the semiconductor business. While there may be some supply chain disruptions in the short run, I do not see strong signs that sales will be derailed for the entire year. Clearly, revenue growth this year will be much smaller than that achieved last year, but there will still be growth on top of phenomenal growth last year. I am also encouraged that there have not been any major revisions to revenue forecasts coming from important semiconductor players so far. Moreover, the most recent data from the semiconductor industry association showed a slower than seasonal month-to-month revenue decline in February.

According to SIA data earlier this week, the three-month moving average (3MMA) global semiconductor revenue in February decreased approximately 1.5 percent to $25.2 billion from the $25.5 billion achieved in January, representing a year-over-year increase of 13.5 percent. This continues to be encouraging since the semiconductor revenue 3MMA is usually down 2.8 percent in the comparable time period. At this pace, I believe semiconductor industry revenue is still on track to achieve my expected sequential growth rate of 1 percent during this just completed March quarter.

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So far there have not been any major changes in guidance for the March quarter. Back in January, Intel (NASDAQ:INTC) guided revenue to remain fairly flat at $11.5 billion, plus or minus $400 million. However, it should be noted that March quarters tend to be seasonally down by about 7 percent for Intel. Even more encouraging was that management forecasted full year revenue to increase by 10 percent. Advanced Micro Devices (NYSE:AMD) expects revenue to be "flat to slightly down," and Infineon (OTCQX:IFNNY) expects revenue to be "up slightly." Texas Instruments (NYSE:TXN) guided revenue in the range of $3.27 billion to $3.55 billion in the first quarter or down 7 percent to up 1 percent sequentially. As a result of Japan's earthquake, Texas Instruments said that its Miho plant, which was responsible for about 10 percent of the company's output last year, will not be fully operational until mid July. However, management said that 60 percent of the production from this plant will be transferred to other sites. Although the company did say that sales would be affected during the quarter as a result of this disruption, it did not give exact figures.

So far I do not expect the earthquake to have a major impact in terms of worldwide semiconductor sales. For one, there is plenty of capacity to pick up the slack. Moreover, right before the disaster, inventories were already running at rather elevated levels. While I do see some specific Japanese semiconductor manufactures having some production issues, the slack will more than likely be picked up by competitors elsewhere.

I do see continuing softness coming from PC unit sales, but I still see growth fueled by a wider range of other products that go beyond computers, such as smart-phones, tables, and industrial applications. Other contributing factors should come from automotive electronics, increasing connectivity in the home, LED lighting, upgrades in communication infrastructure driven by 4G networks, and of course expansion in cloud computing. As such, I continue to see semiconductor revenue growth of 10 percent for this full year, and despite the fact that the March quarter revenue tends to sequentially contract by approximately 3.5 percent, I continue seeing growth of 1 percent for this first quarter.