Wall Street Transcript Interview with Doug Freedman, Research Analyst at RBC Capital Markets: 2012 Semiconductor Sector Inventory Trends Disappoint

Wall Street Transcript

67 WALL STREET, New York - October 3, 2012 - 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, Equity Analysts and Money Managers. 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 - Enterprise Data Storage Demand - High Computing Power Technology - Semiconductor Inventory Burnoff

Companies include: Intel Corporation (INTC), Texas Instruments Inc. (TXN), Broadcom Corp. (BRCM), Analog Devices Inc. (ADI), Altera Corp. (ALTR), SanDisk Corp. (SNDK), NVIDIA Corporation (NVDA), Maxim Integrated Products Inc. (MXIM), Marvell Technology Group Ltd. (MRVL), Micron Technology Inc. (MU), Cypress Semiconductor Corporat (CY), Apple Inc. (AAPL), Research In Motion Ltd. (RIMM)

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

TWST: How are orders trending year to date for your group? What expectations do you have for the remainder of the year with regard to order rates?

Mr. Freedman: When we talk order rates in semiconductors, I guess we tend to view them versus what I would say is normal seasonality. It's a very seasonal market and it depends on what product segment you are looking at, what the seasonal pattern is for that end market. So it does vary within the group.

That said, I like to advise investors that when I look at orders, there are really three factors that drive our order trends. There is clearly the big macro picture, and then, there is the issue of product cycles. So you have to question in a very broad manner with respect to orders. It's hard for me to just answer that and say, "Our orders are great, our orders are bad," because it's very much driven upon what your baseline is.

As far as the business in semiconductors, I would have to say that this year has been a little disappointing. If you were to ask me where are we at in the cycle, I would absolutely say that I believe this year has been a disappointing year for most semiconductor companies.

TWST: When you look at order rates in conjunction with inventory levels, what are some key takeaways for you there?

Mr. Freedman: I do think that the industry has been disappointing this year, and that's because late last year, we started what was really a macro-based inventory correction, where the end markets weren't growing as fast as our customers had thought they would be. And as a result, there was really end-market inventory that was built. That started what I would call a "very classic" inventory cycle, where one end market at a time sort of started to rationalize the amount of inventory they carried.

So as we got into this year, the first quarter was a little bit better than expected as we started to sort of inflect on that inventory curve. We've stopped burning off inventory, and as a result, had to grow back up into the demand level that was in the marketplace. Unfortunately, the disappointment came when we hit that demand level a little quicker than we have in past cycles. So to answer your inventory question, I think we burnt off most of the excess inventory in the end markets, but when we look at the inventory levels sitting at the semiconductor companies themselves - as a result of that inventory burnoff in the end markets, the semiconductor companies have stockpiled a little bit of inventory so they are able to handle any uptick in demand that the industry should see.

TWST: What industry-specific metrics do you believe are most meaningful for evaluating semiconductor stocks?

The Wall Street Transcript is 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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