Wells Fargo Semiconductor Research: Semiconductor Weekly

December 6, 2010
Wells Fargo Equity Research

Semiconductor Weekly

Modest expectations exiting 2010 could be followed by recovery in 2011

• Worldwide semiconductor sales reported by the Semiconductor Industry
Association (SIA) were up 11% yr/yr in October, compared to 19% growth in
September. Altera reaffirmed its previous December quarter guidance for sales
growth of 3-6% and issued Semtech reported 9% sequential sales growth in the
October quarter and guided to an 8% sequential decline for the January quarter.
Gartner reduced its worldwide PC shipment forecast for 2011 to 16% yr/yr
growth down from its prior forecast of 18% yr/yr unit growth. For 2011, WSTS
lowered its semiconductor forecast to show 4.5% growth to $313.8 billion
compared to its prior forecast of 5.6% yr/yr revenue growth.
• Worldwide semiconductor sales reported by the Semiconductor Industry
Association (SIA) were up 11% yr/yr in October, compared to 19% growth in
September, 31% growth in August and 28% growth in July. The three-month
rolling average of month-over-month semiconductor sales growth was flat in
October, much as we expected. We believe that we are still in the early stages of
the global electronics end market recovery, and we think that following a soft
patch in the second half of 2010, demand for chips could pick up in 2011. Last
week we are introduced our 2011 worldwide semiconductor shipment growth
projection of 10-15%.
• Texas Instruments held an analyst event at its Richardson Fab Facility. TI
expects that its primary driver of EPS going forward will be revenue growth
rather than margin expansion. Building out the current phases of RFAB and two
of the four newly acquired fabs will give TI an incremental $4 billion of analog
capacity, and when all the facilities are fully equipped and used this could double
to an incremental $8-9 billion.
• Altera updated its sales guidance for the December quarter and FY2011. The
company reaffirmed its previous December quarter guidance for sales growth of
3-6% and issued FY2011 guidance for gross margin, R&D, SG&A and the
corporate tax rate. Semtech reported October quarter sales of $123.1 million
(+9% sequentially and +64% yr/yr) with growth driven by communications,
consumer and industrial. Semtech guided January quarter sales to the $110-$116
million range (midpoint=down 8% sequentially).
• In the coming week the month/month trends for sales of Taiwanese technology
companies in November will be released. We expect that many of the chiprelated
composites might show month-over-month declines. It will be
interesting to see what the PC-related data shows – given a number of recent
news items and other data points we think the notebook data might show
ongoing softness while the motherboard data shows stability.


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