Tuesday, November 3, 2009

Semicon update Oct. ’09: Will the perfect calm drive 2009-10 recovery?

Here are the excerpts from the Global Semiconductor Monthly Report, October 2009, provided by Malcolm Penn, chairman, founder and CEO of Future Horizons. There are a lot of charts associated with this report. Those interested to know more about this report should contact Future Horizons.

August IC sales were up 1.7 percent on July, driven by a 2.2 percent increase in ASPs and a 0.5 percent fall in units. Whilst this is nothing to write home about when taken in isolation, both the ASP and unit trends were in line with normal ‘month two of the quarter’ expectations, they did show that the market recovery is not running out of steam as the Q1 inventory correction starts to peter out.

Real demand is thus starting to pick up the baton, just as we forecast in our January IFS2009 forecast seminar. More importantly, it is paving the way for a blockbuster Q3. Already firms are starting to show results well above our 12 percent sequential growth forecast. The future is bright; and it is getting brighter by the minute!

With the third quarter results season now well under way, companies are starting to show stellar results, see sampling below:
* Intel's Q3 sales top expectations.
* Hynix returns to profitability.
* Broadcom shows second consecutive quarter of greater than 20 percent growth.
* TSMC posts best revenue, profit since Q308.
* Foundries top Q3 forecasts on improved utilisation.
* NXP improves sales, net profit in Q3.
* Chips drive profit at Toshiba.
* Semiconductor sales drive record Samsung profits

Intel set the ball rolling with a 12 percent third quarter growth – right on our forecast number – sizeably up on its earlier guidance and second quarter estimate, which in essence means a 12 percent overall market growth is the minimum.

In Europe, ST announced sequential growth of 15 percent, whilst NXP posted a whopping 20 percent Q3 gain. If even NXP can show this kind of quarterly performance, despite its current selling off the family silver strategy, it just goes to show how strong the third quarter will be.

It also throws into serious doubt NXP’s ‘recovery’ strategy. History has proved time and time again you never save a crippled firm by selling off the assets (especially quality ones) or downsizing the organisation. Selling off the assets seriously damages future growth prospects and downsizing an organisation (other than laying off staff) simply cannot be done.

You always end up with the same bloated infrastructure but with a lower sales base to support it; overheads skyrocket and the stagnation just gets worse.

The only way to turn a company around is by steely determination, vision, strategy and above all growth. This, of course, takes time and patience because it does not produce instant overnight results, something the bean counters and financial community have never managed to grasp.

Yet, given their product range and outstanding R&D capability, a few more ‘20 percent growth quarters’ would soon fix NXP’s problems.

To mis-quote Winston Churchill, we have always been bewildered how “so little (sales) has been achieved by so many (products)”. Growing NXP out of its problems should have been a no-brainer; it is a sales not operations problem that they have.

Ignoring the structurally (and typically) wild individual monthly fluctuations – which simply means no single month’s data is a good indicator of the underlying trends – August’s results places us squarely into our -14 percent 2009 growth estimate range.

Having said that, even this revised estimate is now looking too pessimistic given future monthly 12:12 numbers will be measured against a dynamic, whereby the 2009 numbers are trending up whereas the 2008 numbers were trending down, amplifying the impact of the 2009 positive monthly trends. We now believe that November will be the month when the 12:12 growth rate breaks back into clear positive territory.

Malcolm Penn further says: "We also believe we will be upping our Q4 and total 2009 forecast in next month’s Report, based on the better than forecast third quarter results. If September’s sales continue to track July and August’s performance, Q3 will grow in the 18 percent region, increasing the likelihood of Q4 to grow 5 to 6 percent rather than our current 3 percent assumption.

"That would put 2009’s market at $220 billion, down just 10 percent versus our current -14 percent forecast. Even a modest quarterly growth patter on this yields a minimum 20 percent growth for 2010, to around US$ 275 billion -- sizeably more than its 2007 peak.

"Just as the perfect storm killed 2001, the perfect calm will drive the 2009-10 recovery. Time to re-write the 2010 business plans now."

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