April 13, 2012 — Barclays Capital and FBR Capital Markets share their takes on earnings season for public semiconductor companies. Both predict a cycle of inventory replenishment in the semiconductor supply chain that will bode well for chip makers in 2012.

Also read: Top chip companies: 2011 rankings

Barclays Capital foresees “a gradual recovery combined with nearly full valuations” and “an inventory replenishment led uplift that would drive shares higher into 2H12.” Q1 2012 likely was the cyclical trough for many (though some semiconductor companies troughed in 4Q11), indicates FBR Capital Markets.

Q2 earnings guidance at most chip companies will be in-line with earlier predictions, Barclays anticipates. The most important takeaway is that semiconductors reached the bottom of a cycle, with very lean inventories in the supply chain to end Q1. Lead times may broadly expand in H2, driving some supply chain inventory replenishment and the start of a new up-cycle for chip firms, agree FBR Capital Markets analysts. Semiconductor growth should track above end markets, therefore, heading into H2 2012.

Semiconductor companies with exposure to smartphone and tablet designs — including the iPhone 5 — will get a boost this year. Handsets in general will see strong shipments with sales into emerging markets boosting numbers. Q2 will also benefit PC-component suppliers, thanks to easing HDD shortages and lean channel inventory ahead of Intel’s Ivy Bridge launch. Lagging, but not declining, end-use sectors include communications infrastructure, which had a slow start in 2012. The industrial sector is recovering and wireless communications semiconductors will see “choppiness” in the end market.

The chip sector is setting up for an H2 cyclical snapback that should be stronger and longer than originally predicted, said FBR Capital Markets, if macro conditions continue to slowly improve.