Mr. Furlong: Obviously, it's been a volatile year after a volatile 2008. But the semiconductor stocks have had a great run since January, driven largely by what is known in the industry as "inventory replenishment" or "inventory refill." After the Q4 earnings season, Miller Tabak turned bullish on the sector because estimates had been revised from a 15% decline in industrywide revenues to a decline of between 25%-30%. In the March quarter, things got incrementally better. And now in the June quarter, companies pretty much across the board beat estimates, and analysts have raised estimates for the September quarter. Now, as we stand today, estimates for the industry for the year are down somewhere in the region of 18%-20%. All the earnings reports are now in, and this data indicates a decline of around 16%-18% compared to an earlier forecast for a 28%- 30% decline over last year. So call it a 10-12 percentage point swing in revenue expectations; that's why all those stocks have rallied significantly off the lows.
TWST: What is driving the 10-point swing?
Mr. Furlong: The 10-point swing was driven largely by inventory replenishment.
Basically, companies further up the food chain - the OEMs such as Cisco (CSCO)
and Hewlett-Packard (HPQ), and the ODMs in Taiwan - overreacted in the December
and March quarters, and took inventories down. And then it transpired that we
weren't going into a depression; it was a very bad recession. Numbers for the
March quarter and June quarter weren't nearly as bad as the companies feared
back in January. So they had to refill the channel that they had so aggressively
depleted back in Q4 and Q1 of this year. The semiconductor companies were the
first to see the inventory refill.
Tickers included in this excerpt: AAPL, ALTR, ARW, ATT, AVT, CSCO, HPQ, JNPR, NOK, NSM, RIMM, SLAB, VZ, XLNX
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