Conventional wisdom says the semiconductor companies need a GDP consistently above 2.5 to do well. To see what the last 6 years history says, I have graphed the total sequential quarterly revenue change vs. GDP for the following 6 Industrial / Analog Semiconductor companies all of which makes thousands of devices that go into almost every imaginable end market product made in today's modern world.
Analog Devices (ADI) makes analog, mixed-signal and digital signal processing integrated circuits (ICs) used in industrial, automotive, consumer and communication applications. Currently pays an annual dividend of 2.8% based on Friday's closing price.
Maxim Technology Products (MXIM) makes linear and mixed-signal integrated circuits used in industrial, communications, consumer and computing markets. Currently pays an annual dividend of 3.4% based on Friday's closing price.
Atmel Corporation (ATML) makes microcontrollers, nonvolatile EEPROM memories, RF and automotive ICs, and ASICs used in industrial, automotive, computing and consumer markets. Atmel does not currently pay a dividend.
Fairchild Semiconductor (FCS) makes networking and multimedia processors, microcontrollers, RF ICs used in industrial, communications, automotive, and consumer markets. Fairchild does not currently pay a dividend.
Microchip Technology (MCHP) makes microcontrollers, analog, and nonvolatile EEPROM memories used in industrial, communications, automotive, computing, and consumer markets. Currently pays an annual dividend of 3.9% based on Friday's closing price.
Linear Technology (LLTC) makes analog integrated circuits used in communications, consumer, computing, and consumer markets. Currently pays an annual dividend of 3.2% based on Friday's closing price.
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From the graph you can see the average 4Q sequential revenue guide by these six Industrial/Analog semis is a negative 8.6% which is the lowest since the 2008-2009 recession. The chart below shows this information by company as well as the average.
I was curious to see what correlation there would be between the GDP in other parts of the world and the revenue change for the above 6 companies. Thus, I have included the Eurozone and China GDP along with the US GDP. Apparently the US GDP lead the way back in 2008 with a lag time of one quarter in Europe. With Europe contracting in the 4Q does that mean the US will be hit hard in the 1Q?
In conclusion, it appears to me that the 4Q revenue guidance for these Industrial / Analog Semi companies are signaling a significant slowdown world wide which will play out over this quarter and the first half of 2012. This is contrary to popular wisdom with many financial sell side economists espousing 4Q US GDP of 3.5% and above with only Economic Cycle Research Institute calling for a US recession in the first half of 2012.
We will have a quick read to see if ECRI is right in the first few weeks of January when several of these companies report 4Q earnings and 1Q guidance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.