Semicon Stocks Have Greater Upside due to Increased Lead Times and the Chinese Stimulus Plan Spurring Electronics Spending, According to Industry Expert

• On 4:23 pm EDT, Tuesday September 1, 2009

67 WALL STREET, New York - September 1, 2009 - The Wall Street Transcript has just published its Semiconductors, Semiconductor Equipment, and Software Report offering a timely review of the sector to serious investors and industry executives. This 115 page feature 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: DRAM Industry Reorganization -- Semiconductor Supply Chain Status -- Netbook Growth -- LCD TV Growth -- NAND Pricing and Demand -- Micro-Electro-Mechanical Systems (MEMS) Demand Cycle -- Ultra Low Voltage Processors -- Semiconductor Inventory Aging and Type -- Processor Power Developments

Companies include: Intel (INTC); Micron Technology (MU); Microsemi (MSCC); STEC, Inc. (STEC); National Semiconductor (NSM); Texas Instruments (TXN); Taiwan Semiconductor Manufacturing (TSM); ON Semiconductor (ONNN); Intersil (ISIL); Linear Technology Corporation (LLTC); Monolithic Power Systems (MPWR);Advanced Photonix (API); Waytronx Inc. (WYNX); LTX-Credence (LTXC); Mattson Technology Inc. (MTSN); Oclaro, Inc. (OCLR); Silicon Laboratories (SLAB); Microchip Technology, Inc. (MCHP); Cohu, Inc. (COHU); FSI International, Inc. (FSII); Jaco Electronics (JACO); Cadence Design Systems (CDNS); Synopsys (SNPS); Mentor Graphics (MENT); Magma Design Automation (LAVA)

In the following brief excerpt from the 115 page report, J. Steven Smigie, Senior Vice President - Equity Research Raymond James Financial Inc., discusses the outlook for the sector and for investors.

TWST: Would you tell us about the trends and developments you have seen in the semiconductor sector over the last six months?

Mr. Smigie: I cover the analog and discrete sectors of the semiconductor industry. So for the most, part my comments will be specific to these segments. Semiconductors are at the back end of the supply chain. So as demand slows for products at the front end of the supply chain - such as computers, cars, telecom equipment, factory automation, washing machines, what have you - semiconductor companies usually experience a more severe decline. And particularly for the companies I cover, as much as 50% to 70% of their revenues might go through a distributor, like Arrow (ARW) or Avnet (AVT). So as demand at the original equipment manufacturer level (OEM) slows, the OEMs start reducing semiconductor orders along with reductions in their own internal inventory. Additionally, channel distributors such as Arrow and Avnet start reducing their inventory levels. So as demand falls and orders stop coming in, semiconductor companies have to reduce OEM and channel inventory, as well as their own inventory. So the drop in sales is magnified by the need to work down the OEM and channel inventory. We've seen a lot of this in my space over the last 10 months or so. My companies were particularly hard hit because they make significantly more use of the channel than a company like Intel (INTC), for example. I don't know Intel's specific distribution channel usage, but I suspect it's not very large. Companies that use a more direct sales model are probably less affected by the drop in demand. A 10% to 15% drop in OEM sales equates to about a 40% drop in revenues for my companies. This can be pretty devastating. Last year, they were forced to cut more than 25% of their workforces - mostly factory workers.

TWST: What companies do you follow?

Mr. Smigie: I cover 17 companies: Analog Device (ADI), AuthenTec (AUTH), Broadcom (BRCM), Diodes, Fairchild Semiconductor International, International Rectifier (IRF), Intersil (ISIL), Linear Technology (LLTC), Monolithic Power Systems (MPWR), Microsemi (MSCC), Maxim Integrated Products (MXIM), National Semiconductor (NSM), ON Semiconductor, Power Integrations (POWI), Semtech Corp. (SMTC), Texas Instruments (TXN) and Vishay Intertechnology (VSH).

TWST: What is your outlook for your companies for the third quarter?

Mr. Smigie: It should be a good quarter for my companies, relatively speaking. Now that they are no longer draining inventory, we're starting to see a pickup in factory utilization rates. I think margins are going to pick up, and increasing revenues are going to drive earnings up. So I think there are a lot encouraging signs for my companies. Most of them ship globally, and a lot of the shipments go into Asia. So they are benefiting from the Chinese government's stimulus program, which has been very effective in creating demand for TVs and a lot of stuff like that. Demand from China has helped to keep things going for my companies. I am speaking of demand at the consumer level as well demand related to the massive buildout of the 3G wireless infrastructure.

TWST: What is your economic outlook going forward?

Mr. Smigie: I look at the IMF forecast. The IMF is calling for something like 4% GDP growth worldwide and 1% growth in the US.

TWST: What does this mean for your companies going forward?

Mr. Smigie: There is seasonality, depending on each company's revenue mix. For example, for a company with a more industrial type mix, Q4 might be a little bit better, but nothing special. Q1 and Q2 usually are better for industrial and telecom companies. For the consumer-driven companies, usually Q3 and Q4 are better. I think we have a decent sense that Q3 this year will be solid for my companies, and Q4 should be okay, too. The question then becomes whether we will we have a real recovery in 2010. If you believe the IMF's 4% forecast for global GDP growth, I think you will see a modest recovery in the revenues of my companies, and the stocks will continue to work higher as people look out over a multi-year cyclical recovery. Shorter term, people are worried about a W-shaped recovery, particularly in the US. But other countries, such as India and China, are showing some decent growth, and they may help offset another downturn in the US. A return to recession in the US still wouldn't be good. The US is the number one economy in the world, it still represents something like 25% of worldwide GDP. But fortunately, some of the other economies may help keep demand up.

TWST: Thank you. (LKS)

J. STEVEN SMIGIE Senior Vice President - Equity Research Raymond James Financial Inc. 880 Carillon Parkway St. Petersburg, FL 33716 (727) 567-1000 (800) 248-8863 TOLL-FREE www.raymondjames.com

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