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Thursday, October 23, 2008

Semicaps see significant memory cutbacks

Lam Research last night reported a precipitous decline in business, guiding next quarter down 30-35% on revenues. Memory still represented 72% of the current quarter's 440 mil of revenues in the face of unprofitable economics in the DRAM and NAND markets. Their prior official forecast was for up memory in Q4. Mattson, a smaller semicap with a big memory book, forecast a 40-60% decline in business for next quarter.

Samsung is widely expected to take a hatchet to memory capex at some point in the not too distant future. Analysts seem to be gearing up to make the "this is as bad as it gets" call when Samsung, the number one buyer of semiconductor equipment, slashes their forecast. Sandisk and Micron also cut their capex budgets by as much as 65%. No question, the downward velocity of the cuts is going to peak... but that doesn't mean there's an upturn on the horizon.

In an uncertain environment, investors will want to see some indication that things can get better. The stocks are historically cheap. They are still extremely memory dependent. The foundries are also suffering from lower order rates and their capex for next year is likely to moderate. My guess is there's no hurry to buy these. It's good to see reality come to play into the forecasts.

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