Doug Freedman from Gleacher & Co. is bullish on Spansion, which he applauds for shedding its commodity-memory clothes to embrace its role in embedded NOR flash apps. Elsewhere, analysts ponder the potential fallout of a Samsung DRAM-tool pushout, and the bright side of Amkor's 3Q/4Q missed numbers.
CODE reuse: Tracking Spansion's triumphant return
Bullish on Spansion? That's Doug Freedman from Gleacher & Co., who applauds the company's emergence from bankruptcy with a focus on diverse embedded NOR flash end-markets -- and walking away from consumer mobile phones -- that frees it from the relentless price-gouging and cost-cutting pressure cooker of commodity memory. Where cell phones are cost-sensitive and lean toward more leading-edge geometries, Spansion's new core strategy embraces markets where its trailing-edge NOR flash technology (read: reliable, manufacturing-efficient, lower-cost wafers) can be used as code storage alongside integrated MCUs: industrial automation, automotive, gaming, smart grid, comm/networking.
Characterizing Spansion's new go-to-market strategy as "very similar to general purpose analog suppliers," he sees more likeness to a model like Cypress Semi -- "gross margin of 57% with roughly a 35% operating margin [...] and very similar cash flow characteristics" -- and share gains approaching 40% (vs. 30% today), in what he sees as a favorable competitive landscape in embedded including Macronix and Winbond, both of whom are lagging in technology (110nm and 90nm respectively), while CODE can get down to 65nm with scale.
With CODE dropping the bankruptcy label that kept it blacklisted from OEMs' preferred vendor list, the near- and medium-term picture looks bright, Freedman proposes. (Just watch the long-term possibility of longer-term memory integration, possibly from SoC/monolithic IC suppliers, he warns.)
Samsung shivers, LRCX freezes?
CitiGroup's Tim Arcuri warns that Samsung could push out up to $1B of orders for capacity-additive DRAM manufacturing equipment, and subsequently cast a downward glance on several firms (LRCX, NVLS, ASML) that are heavily leveraged to that customer. Barrons blogger Eric Savitz applauded Arcuri for "a refreshing bit of candor" in his mea culpa of a previous Sell rating being proven "flat-out wrong," with earnings rising more than expected and share gains "very impressive." Nevertheless, he warns that the Samsung tip-off could lead to a LRCX warning about calendar 4Q, and quarter shipments appear in worse shape than the company's last public outlook. (Arcuri isn't alone; Goldman Sachs reportedly removed LRCX from its "conviction buy" list too.)
False alarm: AMKR's no coal-mine canary
Amkor's 3Q10 results and 4Q10 outlook fell short of expectations, citing reasons from a tilt in mix toward BGAs (high-demand/high-content/low-margin) to lower utilization to currency valuations, but don't take the misses as a broader message about the semiconductor cycle, notes Credit Suisse analyst Satya Kumar. Rather, focus on AMKR's story: "substantial cycle to cycle improvement in metrics like capital discipline and gross margins," he writes. "It does appear that the weakness is more due to semis going through a mid-cycle pause than share losses." Assuming one takes TSMC's projection of 14% foundry growth to heart, that could translate into ~10% for AMKR, he says, while the company's declining capital intensity (~12% in 2011 vs. 16% in 2010) will boost cash flow.