January chip shipments should be about flat sequentially versus December, far worse than the typical January growth of 20%, according to Craig Berger, an analyst with Friedman Billings Ramsey. He says that checks with Asian distributors finds PCs tracking seasonally lower, but memory and consumer-electronics related shipments “meaningfully worse than seasonal.”
Berger says notebook-related chips are trending stronger, as notebooks continue to take market share from desktops. He says DRAM pricing is “not likely to rebound in a material way anytime soon.” As for NAND Flash memory, he contends that the emergence of solid-state drives will be offset by weakening NAND flash consumption in Apple (NASDAQ:AAPL) iPhones and iPods and other consumer devices in the first half.
He also says that there are excess chip and finished goods inventory in China’s handset market, with most of the excess parts in the hands of the device makers, not the distributors. He says it could take 6-8 weeks to burn off the excess handset-related inventory in China.
All that said, Berger contends a historical analysis of chip stock cycles suggests that the downcycle has been going on long enough - seven months - that we are likely nearing a trough. While the extent of the current economic weakness is unclear, he contends that “data suggest investors likley want to be overweight chip stocks by April.” Adds Berger: “While slowing growth and negative EPS revisions should continue, sector valuations are beginning to bake in a global recession.”