- Citigroup Semiconductor Equipment team notes that most investors remain focused on "how long will it last" rather than "how bad will it get". While this process has begun in the back-end (TER's orders -41% Q/Q), it simply has yet to occur in the front-end and must for the firm to be more positive . This week's sensitivity analysis suggests front-end tool orders have downside of ~45% over the next several Qs. This is based on a top-down assumption that chip units decline ~12% from current levels as inventory clears the channel - more comparable to C1997-1998 than C2004 which they feel was more of a mid-cycle correction in the middle of what has been a ~4 year long upturn.
Among those reporting thus far, chip inventory is up ~38% Y/Y (13% ex INTC). Because Y/Y
variations in chip inventory typically lag changes in chip production levels by ~6mos, the firm would expect at least two more Qs of significant Y/Y inventory build (through CQ1:07) since factory production cuts began only recently. Remains cautious on group, KLAC top idea.
Notablecalls: I continue to be very cautious regarding the Semi space. Not actionable but good to know category.
Among those reporting thus far, chip inventory is up ~38% Y/Y (13% ex INTC). Because Y/Y
variations in chip inventory typically lag changes in chip production levels by ~6mos, the firm would expect at least two more Qs of significant Y/Y inventory build (through CQ1:07) since factory production cuts began only recently. Remains cautious on group, KLAC top idea.
Notablecalls: I continue to be very cautious regarding the Semi space. Not actionable but good to know category.
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