Intel (INTC), Taiwan Semi (TSM) And Samsung (005930.KS) Spend Heavily On Capex; Semiconductor Capex In 2012 Will Not Decline As Much As Previously Expected

Wall Street Transcript

67 WALL STREET, New York - December 6, 2011 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This Semiconductors report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Energy Efficiency, Cloud Computing and Telecommunications - Semiconductor Content Increase Across Verticals - Semiconductor Manufacturer Consolidation

Companies include: Applied Materials (AMAT); Atmel (ATML); Avago (AVGO); Broadcom (BRCM); Cavium (CAVM); Cisco (CSCO); Hittite Microwave (HITT); Inphi (IPHI); Intel (INTC); Juniper (JNPR); KLA-Tencor (KLAC); Linear Technology (LLTC); Marvell (MRVL); Microchip (MCHP); Micron (MU); NVIDIA (NVDA); NetLogic (NETL); Netlist (NLST); Novellus Systems (NVLS); PMC-Sierra (PMCS); Qualcomm (QCOM); TSMC (TSM); Texas Instruments (TXN); Xilinx (XLNX) and many more.

In the following brief excerpt from the Semiconductors report, industry experts discuss the outlook for the sector and for investors.

Srinivasan Sundararajan, Ph.D., is an Executive Director and Senior Analyst at Oppenheimer and Co. Inc. covering the specialty semiconductor and emerging technology sectors. Mr. Sundararajan most recently was at Barclays Capital, where he covered the semiconductor equipment, solar and LED sectors. Before Barclays, he worked at Citigroup Inc. and CIBC World Markets Inc. on the semiconductor equipment teams. Mr. Sundararajan also brings extensive industry experience working at Hermes Microvision, Inc., as a Senior Marketing and Applications Director; Schlumberger/Applied Materials, Inc., as a Senior Product Manager; KLA-Tencor Corporation as a Product Manager; and Novellus Systems, Inc., as a Technologist/Integration Program Manager. He holds a B.S. and M.S. in chemical engineering from the Indian Institute of Technology, a Ph.D. in chemical engineering from the University of New Mexico, and has completed postdoctoral work at the University of California at Berkeley.

TWST: Let's start with your background. How did you get involved in the semiconductor space?

Dr. Sundararajan: I originally come from the semiconductor equipment industry and before that, I completed my Ph.D. on silicon oxide surface characterization and modification by thin-film coatings. After having spent 10 years in semiconductor equipment industry supporting Intel (INTC), TSMC (TSM), Samsung (005930.KS) at companies such as Applied Materials (AMAT), Novellus Systems (NVLS) and KLA-Tencor (KLAC), I joined Wall Street five years ago and have gradually moved up to be a Senior Analyst at Oppenheimer.

TWST: Right now, what is the status of the sector, and what are the most important factors driving the sector? What about challenges for the sector?

Dr. Sundararajan: Let's divide them by subsector. The semiconductor equipment sector troughed in terms of orders in CQ3 of 2011 and will trough in terms of revenues in CQ4 of 2011. Due to a foundry arms race for making application processors for tablets and mobile phones, 2012 is shaping to be better than expected. While consensus expectations are perhaps 10% to 20% down y/y for capex, I actually think that the semiconductor capex will be flat y/y in 2012, unless Europe gets worse. My reasoning is that 2011 second half experienced a large deceleration in orders and revenues and next year should be better, especially in terms of comparisons. Furthermore, companies such as Intel and TSMC spent a lot of their capex on buildings, and Samsung is set to increase capex next year both for its foundry, NAND and OLED offerings.

For the memory-related chip companies, after enjoying a reasonably good 2010, this year was marred by free fall price drops in both DRAM and NAND. However, NAND players reacted quicker and curtailed their capex and production increase plans and communicated that to the market. Hence, the NAND market was the first to improve. Lately, DRAM companies have also cut production and DRAM ASP drop is not as severe as it used to be in the earlier part of the year.

The flat panel subsector is suffering as demand for both TVs and PCs has been less than forecasts earlier in the year due to general economic macro weakness. However, companies are cutting production, fab utilization and capex.The LED subsector is also weak. LEDs currently are used for backlighting in TVs and there is an overcapacity for LED production. Meanwhile, TVs are not selling well, and people have not been inclined to pay a premium for LED backlight TVs. In addition, TV makers have learned to make do with fewer LEDs for the backlighting. This sector will recover when LEDs start to serve the general lighting application even more, but that may be six months to two years away to gather full steam. And also, in general, Chinese overcapacity in MOCVD will have to be consumed. OLEDs should be a growth sector as OLEDs have generally better contrast and lower power consumption than LEDs - could be useful as screens for mobile devices such as tablets and smartphones would go to OLEDs and starting next year, Samsung, LG (066570.KS) and AUO have plans to make OLED TVs. But a lot more manufacturability improvements have to be done.

Human interface semiconductors includes Synaptics and Omnivision. Synaptics has a new CEO and is in the midst of a transition from selling modules - higher ASP, lower gross margin - to chip and tails - lower ASP, higher gross margin. The stock has run up based on both the reputation of the CEO - he was part of senior management at ATI (ATI) that was acquired by AMD (AMD). Omnivision is suffering from apparently losing its slot as the CMOS image sensor vendor for iPhone 4S' camera.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This Semiconductors report is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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