Five Reasons To Be Bullish On Semiconductors

Daniel Heyler, Hong Kong-based chip analyst for Merrill Lynch, this morning shifted his rating on the Asian chip sector to Overweight from Market Weight, and upgraded his stance on a a number of foundries.

He shifted to Buy ratings from Neutral on Taiwan Semicondcutor (TSM), Chartered Semiconductor (CHRT), Siliconware (SPIL) and Hong Kong-listed ASM Pacific; he moves to Neutral from Sell on Semiconductor Manufacturing International (SMI) and a pair of Taiwan-listed companies, Via and SiS.

Heyler offers five reasons for his more bullish stance.

Inventory digestion should resume in Q2 after two quarter pause.

Capacity growth should slow to 3% in the first half over the second half of 2006.

Wafer shipments should reach 15%-20% sequential growth in Q3, from 4%-7% in Q2.

The stock have 25%-30% upside, he believes.

Estimates a bit high, but have discounted disappointing Q1 and “muted” Q2.

Heyler lists his top foundry picks, in order, as Chartered, TSMC and UMC (UMC).

This morning:

Taiwan Semi is up 12 cents at $10.90.

Chartered Semi is up 28 cents at $9.66.

Siliconware is up 3 cents at $10.49.

UMC is up 5 cents at $3.30.

Semi Manufacturing International, also called SMIC, is up 6 cents at $6.96.

TSM v. UMC v. CHRT 1-yr chart: