TSMC datapoints suggest a poor Q4 for semis, analyst reports

"These checks are in line with our recent inventory days data, which suggests 2H08 semiconductor component orders should track below seasonal and also weaker than in 2H07, given higher year-over-year inventory levels in 2Q, including at OEMs, while end-demand has further weakened," said Tristan Gerra, analyst with research and investment banking company Robert W. Baird & Co today in a report.

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 9/5/2008

TSMC orders are likely to be down substantially in Q4, leading utilization rates to potentially reach a five-year low with the datapoints supporting a below-seasonal Q4 that suggests a potential downside risk for semiconductor estimates for Q4 and 2009 as the entire technology food chain reduces inventory levels through year-end, according to Tristan Gerra, analyst with research and investment banking company Robert W. Baird & Co.

Despite the recent sell-off, we see little rebound potential for semiconductor stocks near term, Gerra noted.

Specifically, Gerra believes, based on recent checks that TSMC utilization rates are likely to decline sharply in Q4 and potentially reach a five-year low, with TSMC’s Q4 revenues possibly down by high single-digits sequentially, triggered by a double-digit decline in orders for Q4.

“These checks are in line with our recent inventory days data, which suggests 2H08 semiconductor component orders should track below seasonal and also weaker than in 2H07, given higher year-over-year inventory levels in 2Q, including at OEMs, while end-demand has further weakened,” he said in a report today.

Also, recent meetings in Asia point to a disconnect between Q3 order ramps and actual end-demand, which will likely lead distributors to cut component orders starting in October while the entire technology supply chain is dedicated to exiting the year with minimal inventory levels, Gerra said.

“Our recent TSMC checks are incrementally negative for Q4 and suggest sharply below-seasonal trends, along with an early peak in Christmas-related shipments (likely this September). And despite the recent sell-off in semiconductor stocks, we see little upside momentum in the group near term given the below-seasonal trends we expect in Q4 and potential excess inventory carry-through in 1Q09,” he continued.

By end-market, Gerra continues to favor the PC space, which has tracked in line with seasonality so far this Q3, and sees ultra-low cost notebooks representing a secular growth trend for 2009.

“We are incrementally more cautious (versus entering the quarter) on the mobile phone space, while consumer electronics continue to track below seasonal,” he concluded.