Roundup – April 3, 2009

Google NOT in talks to acquire Twitter

…though maybe they should, according to several.

FDIC considering issuing notes and equity stakes in PPIPs to banks for toxic assets

Bank sells asset to massively leveraged PPIP and buys stake in same massively leveraged PPIP.  Leveraged risk transferred to taxpayer, leveraged reward transferred back to bank.  Takes leverage in the system to a whole new level.  I tried to draw a flowchart of it and got dizzy.  NYT link also.

Omnivision lands iPhone camera orders

At some significant price discount, to be sure… but there’s a lot of shorts in it.  Micron camera sensor sales missed estimates by 50%.  Might get a chance to buy OVTI on weakness today.

Head of Federal Home Loan Bank System (FHLB) quits over bank marks

The FHLB has some 1.2 trillion in outstanding debt and their books are very overstated.  Not comforting.

Micron conference call transcript

Let me summarize:  gee, we didn’t make as much as we should have when prices rallied.  Fortunately we’ve taken some inventory writedowns so we can inflate gross margins in future quarters.  The industry supply cutbacks will drive prices higher in the second half.

Poly prices fall below $100/kg

I think this is the fourth or fifth article I’ve read about poly prices falling below this mystical $100 level.  It doesn’t seem new.

Altera and Xilinx orders to foundries to increase 10% in 2Q09

Altera orders stronger than Xilinx.  China 3G ramp is likely front-end loaded and unsustainable.

Calling Dick Tracy…

Watch phone.  Dorky.  And cool.  Both really.

Though revenues are better...

Prices of monitors are falling...

As are prices of TVs...

So panel makers still can’t make money

Costs above selling prices will do that despite utilization rising significantly.

Netbooks – all the growth, none of the ASP

Intel’s +$200 ASP on Centrino notebook processors is in some serious danger from these $20-30 Atom chips.

DRAM and NAND prices drift lower on distributor dumping

Distributor dumping is supply chain speak for lack of anticipated demand.  These guys typically load up thinking they can flip chips at higher prices.  Guess it’s not working this time.

FormFactor (FORM) CFO resigns

I wrote about this company when they reported. The CFO resigning to pursue other interests is a big fat red flag. The stock is down a lot, he's got options, the company is telling you its a temporary business condition. The CFO is telling you he doesn't want to stick around for the recovery -- maybe he's telling you there won't be one... or that the books were cooked. All we know is for whatever reason, he'd rather be somewhere else.

I maintain that there's no way to know how profitable the business actually is because the cost accounting has been screwed up for years. Their customers are all memory manufacturers. Hate this stock.

NAND flash contract prices decline

DRAMExchange is quoting NAND contract for the second half of February down 4-6%. End markets are weak and retail inventories seem likely to be high in this environment. I continue to recommend avoiding companies in the memory supply chain with the exception of Micron, where I think CMOS sensor market share gains, NAND flash accounting and reduced spending by competitors in commodity DRAM will benefit the company on a relative basis.

Micron says inventories low, prices rising

At their analyst conference today, Micron indicated inventories in NAND are at 2 weeks and inventory in DRAM are at 3 weeks. They said inventories can't go much lower. They also said recent contract negotiations with PC manufacturers have gone well and they were able to raise prices.

Stock is bid up a bit. It probably has more room.

DRAM spot firmer; Micron

I'm reading about this big rally in DRAM spot prices. There have been a lot of capacity cutbacks of late and I guess it's leading to speculation of tighter supply going forward. That will probably prove true at some point, but I think its way too early to be thinking that way.

From what I understand, inventories at the OEM level are pretty high. The lowered guidance from companies like Intel and National Semiconductor are not indications that the situation is about to get better. There's an awful lot of economic concern out there and it wouldn't be surprising to see further weakness in PC sales as we move through this uncertainty.

Micron has some substantial design wins in CMOS sensors (camera phones) at Nokia. I think by mid-2008 they could go from single digit market share at Nokia to the #1 supplier. The Intel NAND business will begin to generate cash for them due to accounting -- for the first few quarters they had to put money in, now they'll be getting cash back. Relative to other companies in the space, they're likely to look pretty good. That said, I don't love their recent re-embrace of the DRAM market. They went from deemphasizing that business as a driver to saying they have to fight it out in the trenches with low cost Asian producers -- a difficult endeavor for a more unionized workforce. I think it's going to be very hard for them to succeed in memory.

I wouldn't chase a DRAM spot rally here.

FormFactor Q4:2007 Results

Unsurprisingly, another memory market supplier takes it on the chin.

Formfactor misses consensus revenues by approximately 5mm, coming in at 120mm versus expectation of 126mm. They blamed the shortfall on manufacturing issues with their new Harmony platform and said lead times have improved on this product significantly -- and wouldn't you know it, bookings declined a bunch. Lower bookings would improve product availability and bring down lead times -- one wonders if anything has changed in terms of their manufacturing issues -- all we know is they can meet demand better than before demand dropped a lot. They seem to be suggesting that customers couldn't wait for them to bring on more test equipment and had to resort to using competitor's available products and telegraphing weakness until at least the second half of the year.

Revenue guidance for Q1 falls to a 3 year low, coming in at 70-80mm versus street expectations of 120mm -- a 35-40% miss. That's... impressive. They lay off 14% of their workforce due to deteriorating DRAM recovery conditions.

And lets not even get into the cost accounting questions that will continue to dog the company. On second thought... lets get into it. This company had very suspicious margins for a prolonged period of time. I say suspicious because they held up amazingly well in an environment where all their competition saw cost pressures that somehow FormFactor managed to avoid. Sometime later, coincident with their CFO's departure, they discovered accounting irregularities. To me, this kind of discovery brings the whole historical model into question. Trying to gauge where business will stabilize is impossible as the measuring stick has the wrong numbers on it.

I'm sure there's value there but good luck figuring out what it is. It's unanalyzable in its current FORM as I think the whole business model is suspect till they clear the accounting dirt. As a bonus, they're a memory capex supplier, which is my least favorite sector.

Hynix cuts capex

DRAM capex cut by 43% yoy for 2008E — Compared to its previous guidance
of a disappointing capex cut of W4trn for 2008, Hynix has further lowered its
guidance by 10% to W3.6trn (US$3.87bn, down 25% yoy). More importantly,
DRAM capex is estimated to fall 40% yoy to W2.3trn (US$2.48bn) from 2007’s
W3.84trn (US$4.13bn).

MTSN Q4:2007 Results

Mattson announced better Q4 EPS due to an unanticipated royalty payment from DNS and a tax gain. Ex those items, their operating margin was negative. Revenue guidance was significantly below the street at 42-48 mil versus consensus expectations of 57 mil -- a whopping 25% disappointment. Bookings came in well below estimates for the current quarter and apparently visibility has careened off a cliff as the company has decided not to provide bookings guidance going forward.

Mattson's semiconductor capital equipment business sports 70% exposure into the memory capex market at present. Memory has had an unprecedented wave of capex upgrades over the last few years. It's set up for a really steep decline. I continue to advocate avoiding other companies with large exposure to the memory capex market like VSEA, LRCX, KLAC. It's going to be a house of pain for quite a while.

Memory fades further

Powerchip reported a gross margin of -71%. Last quarter it was -13%.

Promos cut capex substantially yesterday. Elpida followed today with a cut 25% below analyst expectations.

This article rehashes some of the other recent negative data points of the memory capex market.

I don't like the memory capex sector at all. Lam's guidance was far too optimistic. Varian, Lam, KLA Tencor, Mattson... all these stocks have a lot further to fall. Estimates are way too high.