Monday, April 02, 2007

Calls of Note Part 1

Several firms comment on Semiconductor Industry Association (SIA) February data released over the weekend.

- Bear Stearns notes that from a YoY perspective the 3MMA revenue growth rate decelerated to 4.2% from 9.3% in January. Semiconductor units also decelerated with February's 3MMA YoY unit growth rate coming in at 2.9%, down from 3.8% in January. 3MMA ASPs increased 1.3% YoY, but decreased 4.3% MoM coming in at $0.483.

February revenue decreased 7.3% MoM to $17.9B, below the historical average growth rate of 5.1% MoM. Both units and ASPs were slightly weaker than expected.

February MPU revenues decreased 7% MoM, and came in well below the historical average revenue growth rate of 32%. MPU units only increased 3% MoM. Historically, units have increased an average of 20% MoM. DRAM revenue decreased 16% MoM versus its historical average decline of 1% as pricing continues to deteriorate. Units were down 2% MoM, slightly below the historical average increase of 1%.

Flash revenue increased 7% MoM versus its historical average growth of 12%, as ASPs continue to decline. Units increased 11% MoM, coming in better than the historical average increase of 10%. Analog revenues were down 5% MoM in what has historically been a flat environment. Units were down 1.6% versus the historical average increase of 7%.

The firm is tweaking lower their full year 2007 revenue growth rate from 6% to 5% YoY, based on a unit growth rate assumption of 10% YoY and an ASP decline of 5% YoY.

- JP Morgan notes revenue in all major categories decreased sequentially, with lower than seasonal declines in all categories except sensors. The microprocessor, memory, and logic categories were significantly below normal seasonality while the analog and discrete categories were slightly below normal seasonality.

Due to the lower than expected sales in February, they are lowering their 2007 forecast from 8% to 6% YoY growth.

JPM believes the excess inventory in the semiconductor industry is being worked down, as February YoY unit growth (ex discretes) was 2.9%, well below the normal YoY unit growth of 10%. As they expected, unit growth has started to decline, and they expect YoY unit growth to become negative in 1Q07, similar to previous troughs.

The firm recently upgraded their stance on the semiconductor sector to bullish due to belief the inventory correction is ending and the fall-off in unit growth gives them confidence.

- Goldman Sachs says they believe that the weakness in the February data supports their view that the 1QCY07 fundamentals have remained challenging despite recent commentary by the analog companies, with the upcoming earnings season likely to be disappointing relative to now elevated expectations.

Firm believes that Street estimates heading into Micron's (NYSE:MU) CY1Q'07 earningsreport are too high ($0.01 in EPS for CY1Q'07 versus GS LPS estimate of -$0.08), with downside likely to be driven primarily by lower than expected DRAM ASPs, which continued to deteriorate significantly since Micron's analyst meeting in early February. Although Micron's valuation is not as stretched as SPE valuations, the recent rally creates risk around the earnings report as they expect the magnitude of losses over the next several quarters to be much greater than Street expectations.

Notablecalls: I continue to reiterate my cautious stance on Semiconductors. Note that Baird is upgrading MU this AM to Outperform from Neutral. While MU's not a trading stock, we may see it being chopped down following market open.

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