Barclays analyst CJ Muse summarizes recent visits across Asia's IT supply chain. Among his list of key themes: End-markets are still soft but stabilizing; capex is stabilizing too, with help from foundries and NAND; LCDs and LEDs are still in the doldrums; and an early Black Friday tipoff.
Semiconductor end-markets stabilizing: Semiconductor end-market trends remain still positive for emerging markets (e.g. BRIC, particularly China/Brazil/Russia), offsetting persistent weakness in the US and Europe. This trend holds for PC demand as well. "Longer-term, it is clearly difficult to get excited about the category (as corporate refresh appears to be peaking), but near-term we do see stabilization as a positive," Muse writes.
Outside of traditional computing platforms, Apple is driving strength in smartphones and tablets in all regions; competitors' buzz is "much more subdued, suggesting expectations have become more realistic and appropriate." ODMs also see potential in Intel's new category of "ultrabooks"; ODMs would prefer to stick with Intel x86 over ARM for these devices citing reliability, but the ASP difference might become a factor, he says.
Overall, Muse maintains his outlook for 4% growth in semiconductors in 2011, and 7%-8% in 2012.
Capex bottom in 4Q11: Signs are mixed for semiconductor manufacturing capital spending, Muse says. "Chipmakers are clearly hesitant to add new capacity" given the current environment. However, NAND is still comparably strong (tracking flattish), foundry will be spending to 28nm (see next point below), and overall capital intensity is increasing due to complexity of node shrinks. Citing Samsung timing and demand uncertainty, Muse sees orders remaining "muted" through 4Q11 -- but look for signs of life in early 2012 starting with foundries and NAND, offsetting a possible cut in Intel's spending. "We do have high conviction of an order recovery in the next two quarters," Muse writes, projecting $29B-$30B in wafer-fab equipment spending in 2011, followed by $27B-$29B in 2012.
Foundries stepping up at 32/28nm: Foundries have yanked back their spending in 2H11 as they still digest inventory through 3Q11 (longer than expected) and visibility is limited, but at least 4Q11 internal forecasts, which were conservative, haven't been changed so things apparently aren't seen getting any worse. But foundries should start spending again soon if only to keep up with their customers' 32nm/28nm roadmap requirements. Muse points to a 50% increased capital intensity for 28nm vs. 40nm, with cost per 1K of capacity rising from $60M at 40nm to $100M at 32/28nm. Don't mistake, spending will still decline, but "only modestly," maybe 5%-10%, Muse says.
Look for spending driven by Taiwan foundries (TSMC adding ~45k capacity/~$4.5B capex for 28nm alone, plus up to $1.5B for 40nm/maintenance), plus Samsung LSI (keeping Apple's A5 and A6 business), GlobalFoundries (ramping Malta fab), and UMC (still in the $1B club). Total projected 2012 spending for those four would be -7%, "significantly better than much more bearish views," he points out.
Memory firms cutting out: DRAM prices have been plunging for a long time now, but seem to have bottomed out in recent weeks. Meanwhile, DRAM makers have been busy, taking as much as ~12% of their capacity offline, Muse notes. That encompasses production cuts in Taiwan and Japan (Muse calculates 50K /WSPM at Powerchip, 30K WSPM at Rexchip, 50K at Nanya/Inotera, and 30K-40K at Elpida) plus conversion to specialty DRAM by Korean memory firms. However, as PC end-market data points show stabilization, and supplies respond to the production cuts (should take a month or so), "we are near-term bullish on the DRAM cycle," Muse writes.
NAND suppliers, meanwhile, are better than their DRAM brethren, enjoying demand driven by smartphones/tablets and (building, eventually) demand for solid-state drives. Apple is on pace to soak up around 30% of the entire NAND flash market in 2011, he notes. Meanwhile, firms are rapidly approaching more complex sub-2Xnm node manufacturing. Overall look for slowing bit growth (Hynix sees 80% in 2011 and 2012, Samsung sees mid-70% and 70% in 2012).
Weak LCDs, and a Black Friday tip: LCD demand is weak too, with utilization rates hovering around 80%, and panel prices are seen down in August and September; shipments are tracking in the low-single digit growth, not enough to stave off inventory buildups. Assuming 4Q11 is below seasonal norms, utilization rates probably won't improve. On the supply side, capex cutbacks and capacity pushouts (e.g. China) suggests a wait-and-see approach heading into early 2012.
How desperate are LCD suppliers to stimulate demand? As a "Black Friday" preview nugget, Muse says he heard about 32" LCD TVs being priced as low as $99 -- well below the $120 panel price.
No help for LED drought: LED firms are feeling very uneasy, too -- sentiment from "a handful of LED players" was "decidedly negative," Muse reports. Component pricing is tracking down in the high single digits for both 3Q11 and 4Q11, and factory utilization has sunk to 50% and even lower. Many suppliers indicate no new MOCVD capacity in 2012; one vendor told Muse that Chinese vendors are selling excess equipment into the used market. "We just don't see a recovery here anytime soon, and [...] 2012 demand could prove to be extremely low," he writes. -- J.M.