FBR Capital: Semiconductor Trading Tidbits: Back-end Checks Show Large Production Cuts
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Rating Summary:
25 Buy, 33 Hold, 5 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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FBR Capital: Semiconductor Trading Tidbits: BRCM, MRVL, NVDA, AMD
FBR analyst says, "Back-end checks show large production cuts due to Japan earthquake order unwinding and increased macroeconomic concerns. Consistent with recent foundry production forecast cuts (07-14-11), recent back-end assembly/test checks at a major supplier are trending noticeably worse than just three weeks ago. In aggregate, 2Q11 back-end packaging requirements grew by 3% QOQ, one point worse than our prior checks (with the deterioration occurring with only a few weeks left in 2Q11). For 3Q11, we see back-end packaging requirements falling by 2% QOQ, a significant seven-point cut versus our prior checks and much worse than seasonal. These back-end production cuts reflect the unwinding of some double ordering that occurred following the Japanese earthquake and related supply chain impacts. We also hear chipmakers have recently become more cautious about back to school and holiday demand given increasing macroeconomic concerns. These checks suggest chip firms’ 3Q11 revenue guidance could be more conservative than expected, possibly driving further share price declines near-term. Our contacts also suggest chip firms may have ‘overshot’ to the downside, with some possibility of upward revisions from here as 2H11 visibility improves. Regarding chip stocks, growing macroeconomic weakness and chip firms’ increasingly cautious view of holiday demand could continue to weigh on chip stocks through earnings season, though we do think that much bad news is reflected in chip stocks with the SOX index below 400. We do hear of some weakness in handsets, optical, China infrastructure, non-Apple tablets, and LCD TVs, with sluggish unit demand in the PC space, and industrial set to see its typical August vacation slowdown. That said, global supply chain inventories appear appropriate, and valuations are reasonably attractive. The most defensive chip stocks in our coverage sector include QUALCOMM (Nasdaq: QCOM), Intel (Nasdaq: INTC), Texas Instruments (NYSE: TXN), and Microsemi (Nasdaq: MSCC), in our view."
"We see big production cuts at Broadcom (Nasdaq: BRCM) and AMD (NYSE: AMD), with Marvell (Nasdaq: MRVL) faring relatively better. Looking at specific chip firms for 3Q11, we see the largest back-end production cut for Broadcom (-16% versus prior check and now -3% QOQ), where we hear notebook PC weakness could be impacting WiFi shipment rates, and with weak digital TV shipments impacting DTV processor shipments. Broadcom could continue to see some baseband weakness extend into 3Q11, though the impacts here are relatively smaller. The next largest negative revision was seen at AMD (-11% versus prior check and now +3% QOQ) where we hear that weak notebook PC builds could be impacting GPU shipments and attach rates. Marvell’s 3Q11 back-end production was cut by 5% versus our prior checks, but is still trending up 8% sequentially, where we hear that game console shipments, China Mobile Ophone shipments, Research In Motion (Nasdaq: RIMM) product launch delays (extending the life of Marvell’s shipments), and relatively firmer hard disk drive shipments are driving upside. For Nvidia, we saw no cut to production, consistent with the past couple checks, but we believe back-end production is still set to fall by 36% QOQ as Intel integrated GPU and AMD discrete GPU share gains impact its business, and as Tegra reorders going into tablets are sluggish. Both Mediatek and Xilinx (Nasdaq: XLNX) had modest three point cuts to back end production, and both are set to see production fall modestly on a sequential basis. Mediatek seems to be seeing relatively firmer front-end and back-end checks than most peers of late."
FBR analyst says, "Back-end checks show large production cuts due to Japan earthquake order unwinding and increased macroeconomic concerns. Consistent with recent foundry production forecast cuts (07-14-11), recent back-end assembly/test checks at a major supplier are trending noticeably worse than just three weeks ago. In aggregate, 2Q11 back-end packaging requirements grew by 3% QOQ, one point worse than our prior checks (with the deterioration occurring with only a few weeks left in 2Q11). For 3Q11, we see back-end packaging requirements falling by 2% QOQ, a significant seven-point cut versus our prior checks and much worse than seasonal. These back-end production cuts reflect the unwinding of some double ordering that occurred following the Japanese earthquake and related supply chain impacts. We also hear chipmakers have recently become more cautious about back to school and holiday demand given increasing macroeconomic concerns. These checks suggest chip firms’ 3Q11 revenue guidance could be more conservative than expected, possibly driving further share price declines near-term. Our contacts also suggest chip firms may have ‘overshot’ to the downside, with some possibility of upward revisions from here as 2H11 visibility improves. Regarding chip stocks, growing macroeconomic weakness and chip firms’ increasingly cautious view of holiday demand could continue to weigh on chip stocks through earnings season, though we do think that much bad news is reflected in chip stocks with the SOX index below 400. We do hear of some weakness in handsets, optical, China infrastructure, non-Apple tablets, and LCD TVs, with sluggish unit demand in the PC space, and industrial set to see its typical August vacation slowdown. That said, global supply chain inventories appear appropriate, and valuations are reasonably attractive. The most defensive chip stocks in our coverage sector include QUALCOMM (Nasdaq: QCOM), Intel (Nasdaq: INTC), Texas Instruments (NYSE: TXN), and Microsemi (Nasdaq: MSCC), in our view."
"We see big production cuts at Broadcom (Nasdaq: BRCM) and AMD (NYSE: AMD), with Marvell (Nasdaq: MRVL) faring relatively better. Looking at specific chip firms for 3Q11, we see the largest back-end production cut for Broadcom (-16% versus prior check and now -3% QOQ), where we hear notebook PC weakness could be impacting WiFi shipment rates, and with weak digital TV shipments impacting DTV processor shipments. Broadcom could continue to see some baseband weakness extend into 3Q11, though the impacts here are relatively smaller. The next largest negative revision was seen at AMD (-11% versus prior check and now +3% QOQ) where we hear that weak notebook PC builds could be impacting GPU shipments and attach rates. Marvell’s 3Q11 back-end production was cut by 5% versus our prior checks, but is still trending up 8% sequentially, where we hear that game console shipments, China Mobile Ophone shipments, Research In Motion (Nasdaq: RIMM) product launch delays (extending the life of Marvell’s shipments), and relatively firmer hard disk drive shipments are driving upside. For Nvidia, we saw no cut to production, consistent with the past couple checks, but we believe back-end production is still set to fall by 36% QOQ as Intel integrated GPU and AMD discrete GPU share gains impact its business, and as Tegra reorders going into tablets are sluggish. Both Mediatek and Xilinx (Nasdaq: XLNX) had modest three point cuts to back end production, and both are set to see production fall modestly on a sequential basis. Mediatek seems to be seeing relatively firmer front-end and back-end checks than most peers of late."
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