April 14, 2009 – Activity among the top global foundries is heating up, with shipments expected to surge as much as 50% in 2Q09, according to an analyst — but it’s too soon to invoke the “R” word (recovery), with another indicator leaning toward a stalling market.

Checks from TSMC, UMC, Chartered, and SMIC suggest 1Q wafer shipments, which sunk about -35% sequentially in 1Q09 following a -32% Q/Q decline in 4Q (vs. +5% historical averages), could spike nearly 50% in 2Q, thanks to demand from PCs and communications apps, and China (geographically). ASPs, meanwhile, are seen sinking another -10% in 2Q.

But beyond what looks to be a strong 1H09 for foundries, the road ahead still looks cloudy. “What makes us concerned a bit is the sustainability of such improvement if other geographies like the US and Europe do not improve,” write FBR Research analysts Mehdi Hosseini and Rafi Hassan, in a research note. They project 3Q wafer shipments will slow to a more muted 8%-10% in 3Q, and don’t see a return to historic reinvestment-triggering ~85% utilization rates until sometime in 2010.

Specifically, FBR sees each foundry’s outlook thusly:

• TSMC: 2Q shipments increasing 35%-40% Q/Q, mostly due to a push from PC (graphics) and LCD customers; utilization rates rising to low-50% range from low-40% range. For 3Q: shipments 8%-10% Q/Q, utilizations “to the high 50% range in 2H09.
• UMC: 2Q wafer shipments surging 70%-75% Q/Q (partly due to historically low 1Q levels), led by graphics, communication, and LCD; utilization rates in the high-50% range vs. ~30% in 1Q. For 3Q: wafer shipments 8%-10%, utilization 60%-65%.
• Chartered: 2Q wafer shipments 40%-45% (vs. -30% in 1Q and -27% in 4Q08), led by PC and communications; utilization rates “in the high 30% range.” For 3Q: “8%-ish” growth.
• SMIC: 2Q wafer shipments up 50%-55% (vs. -50% in 1Q and -30% in 4Q08), thanks largely to local (Chinese) and fabless customers, particularly for wireless communications, DVD, and MP3. For 3Q: “moderate” wafer shipment growth of 10%.

The somewhat positive reinforcement in foundries’ outlooks, though, may be deceiving. In a follow-up report, Hosseini points out that subcons have historically been a leading indicator of foundry performance — and looking at their latest numbers (monthly shipments and sales) suggests that the upswing “appears to have already hit a near-term peak.” The disconnect between subcons’ slowing and foundries’ upswing will likely materialize as inventory stored in “wafer banks” spiking by midsummer. The recovery thus resembles “more of a “U” shape, rather than a “V,” and that it will take a minimum of six to nine months for a bottoming to take place.”

And that, they write, means that equipment suppliers won’t see improvement in their business until sometime next year — and creates more pressure for them to start revising their outlooks accordingly. “We expect ASML to be the first capital equipment company out of the gate with its 1Q earnings report [due April 15],” guiding its initial breakeven point from €450M/quarter to or below €400M/quarter.