Cyclical Recovery for Semiconductors: Length of Down Cycle Proportional to the Length of Up Cycle; Recovery Will Be Slower Because of the Long Up Cycle the Sector Recently Experienced

Wall Street Transcript

67 WALL STREET, New York - June 5, 2013 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Semiconductor Capital Equipment - Cloud Computing, Mobile Device Consumer Demand - Semiconductor Inventory Burnoff - Improvement from Cyclical Bottom - Semiconductor Capital Equipment Spending - New Computing Platform Demand

Companies include: Fairchild Semiconductor Intern (FCS), Intel Corporation (INTC), Altera Corp. (ALTR), Xilinx Inc. (XLNX), Broadcom Corp. (BRCM), Apple Inc. (AAPL), Lattice Semiconductor Corporat (LSCC), STMicroelectronics NV (STM), Micron Technology Inc. (MU), Diodes Incorporated (DIOD), Texas Instruments Inc. (TXN) and many more.

In the following excerpt from the Semiconductors Report, an expert analyst discusses the outlook for the sector for investors:

TWST: As your companies have started to report first-quarter results, what have been the key themes and trends? What notable surprises have your heard from your group?

Mr. Gerra: I think the key themes were pretty consistent with our expectation entering the quarter, post our channel feedback since early March, which is that there is normal seasonality at play, but there is no broad-based recovery yet.

The definition of a broad-based recovery is when semiconductor shipments are exceeding end demand and you have inventory replenishment in the channel, and that tends to result in lead-time expansion, which acts as a gross margin leverage for companies.

I think that even though companies have not said that specifically on the calls, the feedback that we've got from our research ahead of this earnings season, and which has become pretty much something that was confirmed given the guidance provided by the companies that have reported so far, is that there is a recovery, but it's again, probably on the margin a bit weaker than what companies expected at the beginning of this year. And notably, we believe that the order pickup post Chinese New Year has been somewhat disappointing to companies, even though companies are still able to describe the order pickup as a recovery because, seasonally, there is always a pickup post Chinese New Year.

The magnitude of the pickup isn't what companies were expecting, in our view. A good example is Fairchild (FCS), which is broad-based company in terms of customers and products, that had notably fairly disappointing gross margin guidance and also did not guide for any type of inventory replenishment in Q2.

So I think investors have been buying the group aggressively since late last year with the anticipation of say, cyclical recovery starting in Q2, and we haven't really seen that yet. I think this creates some risk in the semiconductor group near term, because...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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