Is the Chip Industry at a Bottom?

Monday’s comments about healthy chip sales in November were followed by the folks at Friedman, Billings, Ramsey, who write in a note that the weaker than average results are about what they expected for the month, and that the chip industry may be at a bottom.

“November chip shipments were 210 bps worse than the month-over-month historical median, consistent with our Asia Tech Tour findings from early December,” writes analyst Craig Berger, noting that, as SIA indicated in the post I made earlier, unit volumes of chip shipments were “robust,” but prices continue to decline: Berger focuses in on dynamic random access chip prices, down 55%, year over year, in the last three months, on average, but you can see double-digit price declines across the board. What will constrain revenue increases for the industry in 2008 is the fact that unit shipments may moderate, while memory chip prices will still fall, he believes.

Interestingly, while Berger is officially “cautious” about the semi market because of falling prices, he takes some time to lay out a bull case, which includes: many chip stocks are trading at 10x to 15x forward earnings, including “quality names,” in his view; equipment makers and distributors around the world have reduced their inventory of chips to “very low levels”; although there is risk of recession in the U.S., and risk to the consumer, global GDP growth and, hence, demand, remains very strong, especially for things such as cell phones; and lastly, the utilization of semiconductor factory capacity is strong, at 90%, but not “overheated.”

Berger’s favorite stocks are Broadcom (BRCM), ON Semiconductor (ONNN), Microsemi Corp. (MSCC), Fairchild Semiconductor (FCS), Atmel (ATML), and International Rectifier (IRF).

Comments

[VennData]

Possibly, especially if new chips will be able to sepelcheck haedlines.

[Ames Tiedeman]

No chance we have hit bottom.