8/3/2010
By Carlos Guillen, Semiconductor Analyst

As I have already stated before, I am very optimistic that the semiconductor industry will post yearly revenues that will come in much better than many expect. Strong demand for PCs in particular have held up very well during this just past June quarter and will likely continue to drive strong growth in semiconductor sales during the second half of this year, despite Euro and Chinese fears.

Corroborating my optimism in the semiconductor industry, according to Semiconductor Industry Associations (SIA) data, global semiconductor revenue in June reached a record high of $24.9 billion, increasing year-over-year by 42.6 percent. In looking at full June quarter revenue, I can also observe that revenue increased by 7.1 percent, which is nicely higher than my estimate of a 4 percent increase. I should also point out that the sequential increase in June quarter semiconductor revenue is typically in the 2 percent range, so the growth experienced during the June quarter was much better than seasonality.

According to SIA, sales during the first half of this year have been exceptionally robust, driven by strong demand from a broad range of markets. I believe some of the components that gave semiconductor revenues its robust growth were strong demand for PCs, cell phones, IT components, industrial applications, and autos. I continue seeing strong demand for PCs and handhelds in 2010, but at a decelerating rate. Nonetheless, I still believe 2010 will be a good year for the semiconductor industry as demand for PCs and handhelds will continue to boost revenues. Moreover, improving technologies are allowing the development of new products that are creating new markets. Some of these new market makers include devices such as smart-phone, net-books, and tablets. These new devices will also create opportunities for sales of memory components during the second half of 2010.

So far into this earnings season, despite Euro fears, quarterly revenues from virtually all main semiconductor players have seen growth in Europe, not phenomenal growth, but still growth. Also, despite concerns with government debt in the U.S., decreasing consumer confidence, and increasing possibility of less government spending, semiconductor revenue continued its momentum. Nonetheless, these concerns continue to pose as significant risks in the remainder of the year.

The semiconductor industry should benefit from a slowly improving economic backdrop and from a corporate sector that is continuing to ramp up spending. At the moment, I see minimal downside risk in terms of corporate spending and am much more optimistic about accelerating IT spending in the second half of 2010. As such, I believe the semiconductor revenue momentum will continue. I expect semiconductor revenue to increase sequentially by 4 percent during the September quarter of 2010 and to rise by 33 percent in 2010, a significant improvement over my prior full year forecast of 29 percent.

Carlos Guillen
Wall Street Strategies