TMFSarahGen (99.78)

Beat and Raise? Sweet! - Semiconductor Edition

May 19, 2009 – Comments (2) | RELATED TICKERS: KLIC , HIMX , ENTG

Have you seen some of the raving comments from these CEO's?  Wow.  And keep in mind they legally can't just pump their stock.  They have every incentive to be very cautious and to underpromise so they can overdeliver.  But they're raving.

What's Going On?

The semiconductor business is a cyclical one.  Gadget makers (let's say your TV, your phone, your games, etc) stock up on chips so they have plenty on hand to make their gadgets.  This is the 'restocking inventory' phase.  When inventory is full or overfull, they stop ordering.  Next in line - The chip makers have to ramp up production to restock customers inventory as well as their own during the 'restocking inventory' phase.  When orders drop off, they have to shut production down quickly and basically wait for new demand.   Next in line - The chip equipment makers who sell to the chip makers sell a bunch of equipment to help the chip makers produce more quickly and efficiently when they're ramping up.  Chip equipment makers are dead meat when that inventory supply line is choked full because gadget makers don't want more chips, so chip makers don't want more equipment - everything goes on hold.

We've just been through the 'choking up with supply' phase, went into the 'inventory drawdown' phase, and are seriously into the 'restocking inventory' phase.  Of course the cycle runs through its paces faster when there is high consumer demand, but the cycle still runs even with low consumer demand.  So this is *not* a consumer demand story (although any ramp in consumer demand will make the low inventory situation more obvious).

Who's Benefiting/Raving/Raising Forecasts?

KLIC - Kulicke & Soffa Industries - reported earnings just a couple weeks ago on April 28th.  But in these two short weeks, demand has grown so fast that they issued new guidance last night raising revenue guidance: The Company now expects net revenue for the third fiscal quarter to be in the range of $40 to $45 million, an increase from the previously forecasted range of $32 to $37 million.  Press Release link.

HIMX - Himax - reported earnings last night.  And they're benefitting not just from the inventory cycle, but also from the Chinese government's sitmulus package.  From the CEO:   ``We are seeing a strong, across the board rebound in the demand for our display drivers, as customers' capacity utilizations have been substantially improved.  earnings press release link

ENTG, ARMH and many related companies are all seeing their stock prices ramp as the news continues to come in from many semiconductor and semiconductor equipment companies that demand is higher than expected.