August chip sales data: Good news, bad news, and another downgrade

October 4, 2011 - Global sales of semiconductors actually ticked up in August back above the $25B level, as demand for tablets and even PCs helped to offset continued slowness in consumer demand, says the Semiconductor Industry Association (SIA). Global chip sales in August 2011 totaled $25.03B, a 0.7% increase from July yet down -2.2% Y/Y. Year-to-date through August, chip sales are up about 2.2%, the SIA says.

The good news: "Encouraging" growth seen not just in perpetually hot tablets but also now in PCs, says SIA president Brian Toohey. That’s helping to offset a wide slowdown in consumer and industrial products and markets, which "is keeping overall sales lower than expected at this point." Another bright spot: autos, where ASSP demand has spurred double-digit growth YTD. Also helping keep chip sales afloat is the continued recovery/rebuilding efforts and fab re-ramps in Japan. Note the M/M uptick in the Asia-Pacific region, which takes most of the credit for the August improvement.

The bad news: the SIA’s YTD growth keeps going down, now at ~2.2%; it was 3.2% YTD in July, and 3.7% for the entire 1H11. (Note: All of the SIA’s YTD, Y/Y, quarterly, and annual numbers are calculated based on monthly actual data; M/M data is based on 3-month moving averages [3MMA], partly to smooth out fluctuations attributed to members’ differing accounting periods.) The WSTS’s midyear forecast (which the SIA now "endorses" in lieu of doing its own separate forecast) for 2011 was 5.4%; a SIA spokesperson told SST that the SIA will have no interim update, but will likely endorse the WSTS’ revision in November. In the past few weeks, though, other industry watchers across the board have been lowering their outlooks to around 2% and even into the red — even perennial IC Insights optimist Bill McClean admitted after recent GDP downgrades that "a flat or negative semi market could be in store for this year and next."

In the meantime, with four months now remaining in the year, reaching that 5.4% rate for 2011 seems increasingly unlikely, needing to make up roughly $111B through December or well over $27B each month. IC sales typically increase a couple percent in Sept-Oct thanks to the preholiday ramp-up, but even that would fall well short at this point.

What the analysts say

While the August numbers seem slow, they’re actually somewhat improving, tracking closer to seasonality than expected and better than July in a number of metrics, most notably pricing. Credit Suisse’s John Pitzer points specifically to IC ASPs (5.6% M/M vs. 3.5% seasonal) and ex-memory revenues (4.5% Y/Y vs. 3.6% and 2.8% in the previous two months respectively). Barclays’ CJ Muse agrees that MPU sales outperformed historical averages thanks to "resilient" ASPs. Both agree that communications/wireless and auto end-markets showed promise in August.

If September revenues follow seasonal trends, 3Q11 would most likely beat Wall Street expectations (1.6% growth vs. 2Q11) — except that fully 15 chip companies across the value chain have already preemptively reduced their 3Q11 expectations, aggregately cutting growth in half to about 2.3%, notes Pitzer. Even so, he sees a "worst-case" 1.3% growth, which isn’t too far off industry estimates, boosted by strength in MPUs offsetting persistent DRAM softness.

Joining the downgrade club is Barclays’ Muse, who given the SIA’s "continued weak" data now admits his ~4% growth outlook for 2011 "is a bit aggressive." Assuming a flattish 3Q (ex-memory) and 5% growth in 4Q11, he’s dropped his outlook "closer to 2%" where most other industry watchers have now settled. "This correction will last longer than 3Q with 4Q also at risk, potentially setting up 4Q11 as the trough," he writes in a research note.

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