The Chinese Wireless Slowdown Could Have Serious Implications for the Semi Industry (RFMD, TXN)

by: William Trent, CFA
We recently wrote how the Chinese market for handsets may be oversupplied. With wireless being the main growth driver for semiconductors these days, a slowdown there could have a magnified effect on the whole semi industry, further bringing down the SOX. A JP Morgan report now suggests that this is indeed the case.

As Tech Trader Daily reported yesterday, Report Nokia (NYSE:NOK) Pushing Out Some Parts Orders; Bad News for RFMD, TXN

J.P. Morgan chip analyst Christopher Danely this morning reports that “checks in the channel” indicate Nokia is pushing out orders for handset components “across the Asian handset supply chain.” Danely says the Nokia pushouts, as well as “weakness from Motorola (MOT), LG Philips and Samsung,” raises concerns about downside risk to estimates for both Texas Instruments (NYSE:TXN) and RF Micro Devices (RFMD). He notes that Nokia represented about 10% of calendar 2005 sales at TXN, and about 38% of fiscal 2006 sales and RF Micro.

“Our checks now indicate the top four global handset OEMs - Nokia, Motorola, Samsung and LG philips (NYSE:LPL) - (roughly 75% of [first quarter 2006] global handset sales) are either pushing out component orders (Motorola and Nokia) or missing [second quarter] sales estimates (Samsung and LG Philips). We believe the rash of negative wireless data points is indicative of either an inventory over-build or weaker-than-expected demand.”

RFMD-TXN 1-yr comparison chart:

RFMD-TXN 1-yr comparison chart

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