Wednesday, August 23, 2006

Calls of Note Part 4

- JP Morgan notes that yesterday, the Semiconductor International Capacity Statistics (SICAS) organization published 2Q06 worldwide integrated circuit wafer fab capacity and utilization. Total industry utilization increased 1% QoQ from 90% in 1Q06 to 91% in 2Q06, above firm's expectation of 87%.

Utilization rates are a primary driver of gross margins and they believe overall utilization rates peaked at 92% in 4Q05 due to seasonal increases in demand and a modest inventory build. The 92% peak utilization rate is roughly in line with the average peak utilization rate of 93% during the previous four upturns.

Firm believes the higher than expected 2Q06 utilization was due to an inventory build. They believe utilization rates should decline during 2H06 due to inventory burn, which should result in downward pressure on gross margins and downside to consensus estimates.

They are reiterating their neutral stance on the semiconductor sector as it appears several leading indicators such as utilization rates, year over year growth rates, EPS estimates and pricing have peaked. Firm's top picks remain Overweight rated Microchip and Marvell.

Notablecalls: Color me bearish for 2007.

No comments: