Article Excerpt:
TWST: Give us an overview of what's going on in the semiconductor equipment space at this point.Mr. Hosseini: I cover semiconductor manufacturing companies. These are the companies that either make the equipment that is used in making the semiconductor chip or they provide services such as contract manufacturing for semiconductor companies. This helps me to better look at the manufacturing food chain as the contract manufacturers account for a 20% to 25% of equipment purchases. Regarding the current status of fundamental equipment industries, we've had a great sequential improvement in booking taking place since the second half of last year. If you go back to 2004, overall bookings for semiconductor capital equipment peaked in Q2 of 2004, and it started to decline and reached the bottom in the middle of last year before starting to recover. I expect bookings in Q1 of this year 2006 to improve double digits and then improve again high single digits to low teens in Q2. These improvements I am referring to are all on a sequential basis. Beyond Q2, I hear from equipment company executives that their visibility on the second half is improving but I am modeling a flattish environment for the second half. Until we have more visibility and conviction, I am not sure if I would have confidence to say that bookings would grow in the second half. So, net net, bookings are expected to improve in Q1, improve again in Q2 at a slower growth rate and go flat sequentially in the second half of this year.
TWST: Why the flat second half? Is it just there is no visibility in
terms of hot new products?
Mr. Hosseini: There are a couple of reasons. First, if you were to look
at the guided cap ex for 2006, and look at how bookings have been
improving and what the booking guidance has been for Q1, then you can
extrapolate a flattish booking for the second half to hit that cap ex
guidance. The wild card here is what is going to be cap ex for 2007. As
we roll into Q4, assuming equipment lead times of somewhere between
three to six months, manufacturers will have to start thinking about
2007 and the required capacity for 2007. And in 2H06 we are six months
away from that, and I don't think anyone has any kind of a visibility
into 2007. We don't have visibility on the second half not to even
mention 2007. In terms of new products, the way I would define new
products is that we are beginning to see the ingredients for a perfect
storm. And what I mean by a perfect storm is something like 1999, 2000
where we had a sizable killer application from each end market hitting
the market. So let's dig into the end markets starting with the
computer. We all have heard that Vista, Microsoft's new operating
system, is going to be introduced later this year and is expected to be
more commonly available next year. But we don't really know to what
extent Vista is going to require hardware upgrades and what the
penetration into consumer and corporations will be. Those are big
question marks. If you look at historical trends, every time Microsoft
has introduced a new operating system, there was a massive hardware
upgrade, and hardware upgrade led to significant chip consumption. The
wild card here is that we don't know. I am not sure if everybody is
going to go and upgrade or to what extent corporations are going to
upgrade. That's a big question mark. On the communication end market,
in handset, the 3G is expected to gain more traction in 2007. The 3G is
a handset architecture that helps offer functionalities on our handsets
that are not available on the existing handsets. And that's more
tailored toward consumers and nobody knows how consumers are going to
react. So that's another wildcard. And under wireline communication, I
don't think corporations have had a significant networking upgrade over
the past five to six years. Are they are going to upgrade their network
infrastructure? And on the consumers end market, we have a new DVD
format coming out, but there are two different formats right now. There
is a Blu-ray and there is HDD, and there is no consensuses on which one
is going to succeed. Nonetheless, whichever succeeds is going to lead to
our replacing our DVDs. And in the other areas of consumer we have PS3,
the new game console coming out, we have GPS, we have more semiconductor
content in cars. So in conclusion, we could see sizable killer apps from
each end market being introduced next year. And if they all succeed,
then I would define that as a perfect storm. The supply chain is nowhere
being prepared for it. That's more of a best case, bullish thesis. The
more mundane or bearish thesis is that these new products may not gain
traction, or only one of them succeed, and the others fall to the
sideline. But what could happen in the worst case scenario is that we
just would go through seasonality. So to summarize the answer to your
question 'what are the new products out there,' we have the bullish case
which is a perfect storm, and the bearish case which is seasonality. If
we go through a seasonally driven environment, then booking for capital
equipment would go flattish for several quarters after the second
quarter of this year.
Tickers included in this excerpt: ASML, ATMI, CHRT, INTC, RTEC, SMI, TOSBF, TSM, TXN, UMC
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