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News Article

Rumours persist that the bottom has been reached

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The McClean Report suggests the industry has reached its nadir and feels vindicated by global figures.

According to Bill McClean in his latest McLean Report update 2Q09 semiconductor company outlooks are increasingly optimistic and the industry has probably turned a corner. In order to compile “real time” evidence that a cyclical bottom was reached in 1Q09, IC Insights gathered semiconductor company financial data from its Strategic Reviews Online Database and released the detailed results in its May Update to The McClean Report. Second-quarter 2009 guidance from 48 semiconductor suppliers was combined with IC Insights’ estimates for 13 “top 25” companies (61 companies in total). It should be noted that, not including the five pure-play foundries, the remaining 56 companies in the research represent about 75% of the worldwide semiconductor market.

Bill McClean explains how it was very enlightening and encouraging to read the comments from many of the companies in the survey. When reviewed, words and phrases like “stabilizing, improvement, bottom, expansion, inflection point, and better than expected” came up often and lend credence to our opinion that a turning point has been encountered in the semiconductor industry. Over the next few months, it will be refreshing to hear the discussion regarding the semiconductor market shift focus from, “where is the bottom?” to, “how strong will the recovery be?”

According to McClean’s research, the top 25 semiconductor suppliers are expected to display an 8% increase in 2Q09/1Q09 sales, 4% excluding the foundries. Guidance from the “other” semiconductor suppliers in our survey (i.e., non-top 25) is even more encouraging than that of the top 25 companies. In total, the “other” 36 companies expect to register a strong 13% increase in 2Q09/1Q09 sales! In all cases, the 2Q09 expectations for the “other” companies were provided by the companies themselves, there were no IC Insights estimates used.

The “Grand Total” of the 61 companies in the survey shows a 9% increase in semiconductor sales expected for 2Q09/1Q09. Excluding the pure-play foundries, the 2Q09/1Q09 growth rate drops to a still respectable 5%, especially considering that the 1Q09/4Q08 and 4Q08/3Q08 semiconductor markets declined by 12% and 23%, respectively.

The April WSTS (World Semiconductor Trade Statistics) semiconductor market figures were recently released and the results appear to back up McClean’s summation of the industry. He describes the results as stunning!  

Comparing April 2009 to January 2009, the first month of the first and second quarter, respectively, worldwide IC unit sales were up 35%!  The IC market in dollars was up 22%!  If the May and June results follow the normal monthly pattern, 2Q09/1Q09 IC sales would be up 16%-20%!   Moreover, 2Q09/1Q09 IC unit volume is currently on pace to grow at least 20%.

McClean suggests we are seeing a return to shipping at the level of underlying demand.  The IC inventory burn is over and inventory replenishment is well underway.  While 2009 PC and cellphone unit sales will likely be lower than in 2008, IC unit volumes in 1Q09 were shipping at levels that were well below what even "slow" electronic system sales would dictate.  As a result, we now have an inventory re-stocking surge taking place that is likely to continue into 3Q09.

In IC Insights' opinion, most observers have completely missed the importance of the April 2009 WSTS figures in the context of the upcoming IC industry rebound.  Comparisons of April 2009 with April 2008, or the use of three-month rolling average figures hide the real story and many have missed the forest for the trees!

McClean rightly points out that while other analysts spent 1Q09 telling everybody how bad things were, and that there was no recovery in sight, IC Insights has, since December of 2008, continued to emphasize to its clients the importance of keeping a quarterly perspective on the IC market this year and to focus on the upcoming quarterly rebound that would take place in 2009.  The ongoing surge in the 2Q09 IC market reinforces IC Insights' outlook that the bottom was reached in 1Q09 and that the IC industry is in the early stages of its recovery.

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