"I think we're heading to the worst semiconductor equipment downturn -- perhaps ever,

Discussion in 'Wall St. News' started by dtrader98, May 29, 2007.

  1. http://biz.yahoo.com/ibd/070524/tech01.html?.v=1
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    Panel Of Analysts Bearish On The Chip Gear Industry
    Thursday May 24, 7:00 pm ET
    James Detar

    Three well-known market watchers, speaking on a Silicon Valley panel Wednesday night, said the chip gear industry is headed for a downturn that could be steep.

    "I think we're heading to the worst semiconductor equipment downturn -- perhaps ever," said James Covello, a Goldman Sachs analyst. "We're starting to see the first signs of that."

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    The comments of Covello at the Churchill Club's 11th Annual Semiconductor Forecast event were the most incendiary, but the other speakers shared similar sentiments for the notoriously boom-and-bust chip and chip gear industries.

    The other speakers were Merrill Lynch analyst Joe Osha and Neuberger Berman Technology Management CEO Dan Niles. Bill Tai, general partner at Charles River Ventures, served as moderator.

    Their consensus was that chip sales will be flat to slightly up this year, which doesn't bode well for chipmakers or companies that make chip-manufacturing gear.

    In the past 20 years there have been four major downturns in the equipment sector, Covello said, each lasting about two years. He expects a fifth major downturn, this year and next.

    He is betting on a steep fall.

    He said he would short the shares of, "any semiconductor equipment company. Novellus (NasdaqGS:NVLS - News) is No. 1 (among stocks he would short), followed by Applied Materials (NasdaqGS:AMAT - News) and Lam Research (NasdaqGS:LRCX - News), in that order."

    Short-selling is a bet that a stock will fall.

    Last Year Was Biggie

    Later, a chip gear industry spokesman couldn't come to the defense of the sector.

    "The numbers are consistent with a flat year for the equipment market," said Dan Tracy, senior director of research at Semiconductor Equipment & Materials International, the chip gear trade group.

    But he also pointed out that chip gear sales skyrocketed 23% last year, to $40.5 billion. He said that marked the second-biggest sales year ever, behind only the $48 billion sold in the 2000 bubble year.

    Tracy says SEMI's current forecast calls for a mere 3.7% sales hike this year. SEMI is slated to update its forecast in July at its annual Semicon West conference in San Francisco.

    Last year, sales of DRAM -- dynamic random access memory -- soared. They are the main memory chips in personal computers. So memory makers such as Samsung, Hynix and Micron Technology (NYSE:MU - News) cranked up their DRAM production lines. This helped the chip gear group.

    But supply ended up outstripping demand. A sluggish economy and slower-than-expected sales of Microsoft's (NasdaqGS:MSFT - News) new Windows Vista operating software have slowed demand for memory chips. DRAM prices have fallen sharply as makers unload excess chips.

    Outlooks Out Of Date?

    Research firm iSuppli says the average price for a 512-megabit DRAM chip -- the most common PC memory chip -- has plummeted to $1.86 from $6.24 on Jan. 1. That is a 70% drop, a lot even for a product known for fast price swings.

    Osha said most people don't yet realize just how bad the impending chip equipment slowdown will be.

    "If you looked at the overall consensus of analysts today, it would still show equipment (stocks as a group) will be up a little bit in 2007. That's laughable," Osha said.

    DRAM sales at Samsung, the world's No. 1 maker of memory chips, rose steadily in 2006, with a fourth-quarter peak of $3 billion. In the first quarter of this year, its DRAM sales fell 17% from the preceding quarter to $2.5 billion, according to iSuppli.

    Micron, the biggest U.S. memory maker, saw its recent DRAM sales peak at $1.02 billion in the fourth quarter, but fall 12% in the first quarter to $880 million, says iSuppli.

    Niles agreed with Osha and Covello that things are getting tough in the equipment market.

    "The equipment guys get 50% of their business from memory companies," Niles said. "There will be cutbacks in capital spending."

    He also advises to keep an eye on Intel (NasdaqGS:INTC - News), which is focused on cutting expenses to compete with rival Advanced Micro Devices (NYSE:AMD - News). If Intel -- the world's biggest chipmaker -- cuts capital spending, that could have a ripple effect in the equipment sector, he said.

    IBD's 60-company semiconductor equipment group has slipped in the past month. The group had a 46% rise from July until April, almost twice the rise of the Nasdaq composite during that period, but since has fallen more than 7%.
     
  2. Good article.

    Those steeped deeply in the know see a secular bear market in all semis.