8/31/2010
By Carlos Guillen, Semiconductor Analyst

With just one month left till the end of the third quarter, semiconductor revenues continue to grow at a nice pace. However, with a shaky macroeconomic backdrop, coupled with guidance reductions from industry bellwethers, it is inevitable to begin to turn more cautions.

Most recently, Semiconductor Industry Associations (SIA) data indicated that the revenue momentum was continuing. In fact, according to SIA data, global semiconductor revenue in July reached a record high of $25.2 billion, increasing year-over-year by 37.0 percent and increasing sequentially by 1.24 percent. While the sequential growth rate is respectable, I must point out that the rate did run below its normal seasonal trend of about 1.7 percent. So, for the first time in over a year the sequential growth rate was lower than the seasonal rate.

Although the sequential decline is not catastrophic, it is beginning to indicate that the September quarter will likely be below seasonal trend. Combining this with Intel's negative guidance adjustment is certainly a cause for increasing caution. It is becoming apparent that revenue growth may have been overstated by many management teams. That is not say that there will not be growth, it is just that growth will probably be attenuated.

For instance, although Intel said that revenues were running softer than expected, they will still see sequential revenue growth in the September quarter. The company lowered its prior revenue guidance to $11.0 billion, plus or minus $200 million, from the previous expectation of $11.6 billion, plus or minus $400 million. However, the midpoint of the new guidance range still represents sequential revenue growth of 2.18 percent. According to Intel, revenue is being negatively affected by weaker than expected demand for consumer PCs in mature markets. It was encouraging to see that, despite the slower growth, not one region experienced a revenue contraction. In particular, notwithstanding concerns about a European pull back, European semiconductor revenue did show slight growth.

All in all, I believe that the softness in PC demand will not be enough to derail overall semiconductor industry growth for the full year as demand for semiconductors continues to grow into a wider range of products that go beyond computers. So, although I am more cautious now, I still believe the semiconductor revenue momentum will continue, and I continue to expect semiconductor revenue to increase sequentially by 4 percent during the September quarter of 2010, which is below seasonality (Sept. quarter normanlly increases by 8%), and to rise by 33 percent in 2010.

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Carlos Guillen
Wall Street Strategies