Chip sales slide in first quarter despite uptick in March

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Industry group cites some market stability, but still sees "limited visibility"

By Benjamin Pimentel, MarketWatch
Last update: 10:30 a.m. EDT May 1, 2009





SAN FRANCISCO (MarketWatch) - Worldwide chip sales plunged 30% in the first quarter despite a small uptick in March, illustrating a market that remains cloudy, an industry group said Friday.

Chip sales totaled $14.7 billion in March, down 30% from the same month last year, the Semiconductor Industry Association said in a report Friday. In a dramatic indication of the chip industry slump, sales for the first quarter of 2009 totaled $44 billion, down 29.9% from the year-earlier period.
The group cited that chip sales in March showed a "modest sequential rebound," coming up 3.3% from February. This, however, was nearly identical to a gain in the February-March period last year, suggesting a seasonal gain rather than an uptick in growth.
"The modest sequential rebound in worldwide sales in March suggests that demand has stabilized somewhat, albeit at substantially lower levels than last year," SIA President George Scalise said in the report. "While all major product sectors showed month-on-month growth, there continues to be limited visibility in end markets."
The SIA said the industry got a boost from stronger demand for smart phones and netbook personal computers.
But Scalise said "there are no clear signs of early firming of demand in other end markets such as automotive, corporate information technology and consumer electronics."
Many analysts have said that an over-correction in inventory had prompted manufacturers buy more semiconductors over the last few months in order to match demand.
But with the uncertainty in the consumer and corporate technology markets, the outlook for the chip industry remains unclear, underscored by the muted outlooks from chip giants such as Intel Corp. Citing the SIA's data, Wachovia analyst David Wong told clients in a note, "We had been hoping to see a bottoming out of semiconductor year/year growth in the March 2009 quarter and we interpret the increase in the three month rolling average as a potential sign that chip demand is lifting from the bottom. We think it is likely that the three month rolling average of chip sales will continue to steadily rise through the next few months."
He added, "In addition, sharply rising production at chip foundries suggests that fabless chip companies in aggregate expect a pickup in business over the next few months."
However, Wedbush analyst Patrick Wang said in a research note said it's too early to call a rebound, saying, "Don't call it a comeback just yet. 'W' still lingers in the shadows," referring to the notion that the industry might experience another downtick before it moves up again.
He said the industry is seeing a boost due to inventory restocking and a government stimulus plan in China.
"Although the downward trend of unit shipments which begun in Sept/Oct has finally subsided, companies continue to under-ship the channel with the hope of entering a seasonally strong second half with shipments more aligned with end consumption," he added.
Wang expects improvements in April and May, but remains cautious on the second half "given the lack of visibility and our belief that demand could fade below seasonal levels in the third quarter and the fourth quarter -- our 'W' theory."
Friedman, Billings, Ramsey & Co. analyst Craig Berger also said in a Thursday note that Intel's second-quarter guidance for sequentially flat revenue may be conservative based on his checks with top personal computer manufacturers.
As the world's No. 1 maker of PC semiconductors, Intel's outlook is widely considered a barometer for where the industry is headed. Last month, the chip giant created a stir by declaring that the PC slump has reached a bottom, but then puzzled analysts by not issuing a formal guidance.
"With management saying that PC shipments bottomed in the first quarter (thus implying they may already be improving), and with the Chinese New Year falling smack in the middle of the first quarter, we are somewhat perplexed as to why Intel does not expect some revenue growth in the second quarter," Berger wrote. "We think conservatism and limited visibility are playing some role."
Benjamin Pimentel is a MarketWatch reporter based in San Francisco.

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Bad sign for Tech?

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