Analyst: Don’t be afraid to be optimistic

June 1, 2009 – Recent chip industry data have been received with hesitation and reservation, a mix of “finally hit bottom” and “wait and see” — but the ever-optimistic IC Insights’ Bill McClean says everyone’s missing the signs in the data that things are much better than they seem.

Gartner says things picked up in 1Q09 enough for it to project a -22% decline in chip sales in 2009, backing off its warning of a possible record -33% decline. Also this week the SIA says its April sales came in with a better-than-expected ~6% increase. Both groups gave a nod to a push in PC sales, and rebuilding inventories, for the upticks.

Going even further, IC Insights has put its stake in the ground by flat-out proclaiming that the industry did indeed hit bottom in 1Q09, citing 1Q09 data and 2Q09 projections from 56 semiconductor suppliers representing about 75% of the worldwide semiconductor market (not including five pure-play foundries the firm also tracked). What it found, McClean writes, was “very enlightening and encouraging”: based on midpoints of guidance, the top 25 chipmakers expect an 8% increase in sales in 2Q09 (4% excluding foundries); everyone outside the top 25 sees even better 13% growth Q-Q. The firm noted multiple mentions of positive sentiments like “stabilizing,” “improvement,” “expansion,” “inflection point,” and “better than expected.” In the next few months, the firm expects the tone of conversations and data-analysis to sound less like handwringing doubt, and more like anticipating “how strong will the recovery be?” McClean also pointed out that typically companies offer conservative guidance, preferring to exceed goals instead of underperform.

– 32 IDMs: +4% ($30.8B; vs. $29.6B in 1Q09)
– 24 fabless companies: +8% ($6.5B; vs. $6.0B in 1Q09)
– 5 pure-play foundries: +82% ($3.64B; vs. $2.00B in 1Q09)

And McClean says the “stunning” SIA/WSTS numbers for April bear out his optimism — if one looks at them in a bit different comparison than the typical Q/Q or Y/Y. According to the SIA/WSTS figures, from January to April IC unit sales have surged 35%, with a 22% increase in dollars, McClean says. If May and June follow normal patterns, 2Q IC sales should rise 16%-20% from 1Q; and unit volumes are already on pace for >20% Q/Q growth.

So what’s behind this surge? “The IC inventory burn is over and inventory replenishment is well underway,” he writes. PC and cell-phone unit sales should still be sluggish in 2Q compared with a year ago, but IC unit shipments in 1Q09 were “well below what even ‘slow’ electronic system sales would dictate,” he writes. “As a result, we now have an inventory re-stocking surge taking place that is likely to continue into 3Q09.


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