Richard Davenport's  Instablog

• Last week, XLNX lowered guidance due to demand
• PR didn't provide details, but we stated that the shortfall was due to capacity constraints at 65nm node (11% of revs)
• DigiTimes, citing UMC's CFO, confirms this
• Reiterate our positive stance on foundries, semi equipment, raw material suppliers, China 3G names

Last week (7.2.09), XLNX lowered its guidance to -5.5% below Street expectations. A press release stated that the shortfall was due to "supply constraints on certain Virtex-5 devices that are in high demand." We noted that the high demand was consistent with recent data, esp surrounding China 3G infrastructure, and also noted that the Virtex-5 was manufactured at the 65nm node, which only accounted for 11% of UMC's revs. We reasoned that 65nm was a mature process, and thus yield issues were unlikely. This morning, a DigiTimes article, citing UMC's CFO Chi Tung Liu, confirms this.

Thus we reiterate our positive stance on several names:

• Foundries UMC, CHRT, SMI, and TSMC: all recent foundry data has been very positive, and data suggest the trend will continue. UMC specifically has underperformed the market by ~20% since we went long 4.23.09.
• China 3G names: we have been positive on a dozen US equities exposed to China 3G since early March. XLNX's strong demand for the Virtex 5, used in comm infrastructure, supports this trend. We reiterate our positive stance on ADI, ALTR, ALU, COGO, CTV, ERIC, PMCS, PWAV, SMI, TQNT, TXN, and XLNX.
• Semi equipment names: our positive stance on semi equipment is predicated on foundry utilization rates doubling this quarter. UMC's capacity constraints at 65nm supports this trend. Thus we reiterate our positive stance on AEIS, AMAT, KLAC, LRCX, MKSI, and NVLS.
• Raw materials suppliers: increased demand supports our positive stance on CCMP and WFR