Mr. Shah: It makes sense to start with last summer when the semiconductor industry was preparing for the seasonally strong second half of the year. There was anticipation for a reasonably healthy back-to-school and holiday shopping season. But the economy was slowing and essentially went into a free fall after the collapse of Lehman Brothers in early September. The semiconductor industry saw an even greater decline relative to the major end markets because customers and distributors around the world were reducing inventory at an accelerated pace. This continued into the first quarter of 2009. But around the February time frame, order rates bottomed out. It was not until late Q1, early Q2 that demand started to show some signs of stabilizing. I think the China stimulus package played an important role in stabilizing end demand, particularly in Asia. We raised our ratings and targets on Microchip (MCHP), Marvell (MRVL) and PMCS (PMCS) in Q1 because we liked how these companies were positioned - high Asia exposure - and felt that consensus estimates were washed out. But Q2 turned out to be much stronger than anticipated. This was due to a combination of stable end-market demand and less inventory de-stocking. We think that same trend has continued into early August.
TWST: Has there been much divergence among the various segments of the
semiconductor market?
Mr. Shah: Yes, there has been significant divergence both from an end-market and
regional perspective. The PC market has rebounded the most of any end market.
Unit volumes in low-cost notebooks, netbooks have surprised us. There are some
pockets of strength in consumer, particularly gaming and TVs. The automotive
market has improved recently as well. You have this program that was announced
by the government, Cash for Clunkers, which has been very popular and reduced
inventory of high-mileage vehicles. At the same time, the industrial market
shows no signs of momentum. In addition, corporate enterprise demand remains
weak.
Tickers included in this excerpt: AAPL, ATHR, DELL, HPQ, MCHP, MRVL, NSM, PMCS, SSY, XLNX
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