Despite lowering forecasts significantly and reporting terrible numbers, chip stocks haven’[t retreated on bad news. Glen Yeung thinks the potential for a semi bottom is in place, though recovery will be muted. He says chipmakers are under-shipping end demand, production was less aggressive on the way into the downturn and production cutbacks are bigger, end market inventories have been brought quickly under control and capitulation of earnings guidance and expectations is complete.
The Skew: Yes, in some cases companies are clearing the decks significantly with their guidance and inventory reductions seem better overall than expected. We don’t have enough OEM guidance to draw too much in the way of conclusion about it. If sales drop 20% for the semis and PC/cellphone demand drops 20%, we’re right where we started. Furthermore, there’s very little in the way of forward guidance to get much sense of the strength of a potential recovery. However, when companies like Texas Instruments are running 35% utilization, Taiwan Semiconductor 40-45% utilization… this suggests their production levels will improve as long as demand doesn’t drop 50-60% – and it probably won’t. We are likely facing a worldwide economic slowdown for the next several quarters which will make end market growth challenging. There will be sporadic growth spurts as semiconductor companies try to find the new baseline growth rate. Baseline growth is probably higher than current production levels and investors are likely to buy stocks when they see business ramping up again.
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