A Bottom For Chips? The Jury’s Out, But We Say Yes

Last Friday the Semiconductor Industry Association (SIA) issued its March chip sales report. Worldwide sales of semiconductors were $14.7 billion in March, a gain of 3.3% from the prior month when sales were $14.2 billion.

Looking at sales for the first quarter of 2009 amounted to $44.0 billion, a sharp 29.9% decline from the first quarter of 2008 when sales were $62.8 billion.

Breaking it down by geography, sales in all geographic regions except Japan showed month-to-month gains. Sales in Japan were sharply lower, reflecting a drop in the country’s economic output. All geographic regions reported lower first-quarter sales compared to the same period of 2008.

SIA President George Scalise remarked, “The modest sequential rebound in worldwide sales in March suggests that demand has stabilized somewhat, albeit at substantially lower levels than last year…

“While all major product sectors showed month-on-month growth, there continues to be limited visibility in end markets. There are some bright spots such as `smart phones’ and `netbook’ PCs, but there are no clear signs of early firming of demand in other major end markets such as automotive, corporate information technology and consumer electronics.”

While it is clear the SIA remains cautious, we feel a bottom in chips has been put in for the following reasons:

Inventory Has Been Worked Off - Looking at industry bellwethers Intel Corp. (INTC) and Texas Instruments Inc. (TXN) past quarterly results, it appears as though excess inventory has been worked off and the future quarters will likely look more like end-market demand.

Changing Consumer Behavior - The savings rate is up, and the days of excessive debt may be gone for the average consumer, but the majority of the end-market products (smart phones, net books) that contain these chips are under $1,000.00.

Higher Chip Content in Energy Conservation - Take a sector that looks dismal at first glance such as automotive. Looking closer, the chip content in electric or hybrid cars is very high due to power switching and power management. Efficiency was not important in those big 8 cylinder cars of the past, but today it is essential.

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