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Friday, January 23, 2009

Qimonda, Samsung, Synaptics


Qimonda filed for insolvency – though a rescue package had been proposed, bickering amongst the rescuers kept funds from being delivered. Infineon, who owns 77.5% of the company, said they would increase reserves to meet potentially significant liabilities related to Qimonda.

The Skew: It would be nice if this one actually went out of business and didn't turn into an undead company that haunts the system, printing unfettered losses and holding down profitability for everyone. As Infineon is a national treasure in Germany, that's unlikely. The government will probably step in and offer them some kind of financially irresponsible revival.


Samsung reported their first ever quarterly loss and gave a dour outlook for the first half based on worsening market conditions. DRAM bit growth was 8%, significantly below the 20% target the co had set for the quarter. They think the PC market will drop more this year in Q1 than the average of 10% q/q. NAND flash shipment volume was roughly in line but ASPs were down almost twice as much as their guidance. The company suggested NAND conditions are much better than DRAM due to production cutbacks at Toshiba/Sandisk and Hynix. They guided for market bit growth down ~8% with slightly better pricing. Handsets were up slightly to 53mm units, they set a shipment goal of "over 200 million" for 2009 but expect the handset market to decline by 5-10%. Lastly, TVs were up slightly q/q (Samsung is perhaps the highest rated TV brand) and down 15-20% in monitors. They said panel utilization has been improving in January relative to the prior quarter. Samsung declined to give hard capex guidance, saying instead they would spend in line with the industry – this suggests a significant decline in spending relative to 2008 without holding them to a number.

The Skew: Samsung capacity cuts are positive for the memory industry. If a handful of Taiwan memory manufacturers could disappear we could really get some better market dynamics. Their intent to overproduce handsets relative to market demand is concerning and ultimately not good for anyone.


Synaptics (SYNA)

Revenue and EPS beat the street due to strength in their handset touch screen business, which grew from 18% to 40% of sales for the quarter. Notebook touch pads were weaker. They guide in-line with consensus for next quarter, citing strength in the handset business. Implied significant weakness in notebook forecast – somewhere in the neighborhood of a 35% decline, according to ThinkEquity. Backlog, 103 mil at the end of last quarter, is roughly 50 mil exiting this quarter. Capstone downgrades the stock, I haven't seen the piece yet.

The Skew: Synaptics is very well positioned in the touch screen phone market, despite not being designed into the iPhone. Other than the Blackberry Storm, most of the iPhone clones won't be around in a year or so. It's a design fad. Adoption may increase but right now I think its just coat tail chasing. I'm a little torn on the stock. On one hand, this is a stock trading at a discount to its growth rate in some very hot product areas. Windows 7 will open up some new markets, I think, in that its specifically designed to use multi-touch interfaces, which is one of Synaptics' strengths. Despite that, they're losing significant steam in notebooks and I think phone touch pads are faddy.


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