Dr. Robert N. Castellano, The Information Network
NEW TRIPOLI, USA: On May 12, 2010, UBS downgraded ATMI to neutral from buy and lowered its price target to $19 from $24. UBS’ checks indicate there will be some level of a 2H10 inventory correction in the semi industry. ATMI company furnishes chip makers with ultrapure materials and related packaging and delivery systems used during semiconductor production.
DigiTimes first made the observation in an April 16 article, which stated that “Taiwan Semiconductor Manufacturing Company (TSMC), alarmed by its rising inventory level, has demanded IC design houses take delivery of their ordered wafer starts before placing new orders, according to industry sources.”
The article went on to say that TSMC’s inventory of analog ICs is currently 50 percent higher than its safe level, while inventories of both network- and consumer-related IC segments have also exceeded their safe levels by about 20%, which has sent TSMC undertaking inventory control measures.
Double booking, which may be a factor in TSMC’s concerns, is what brought down the semiconductor industry in2001, when fear of a shortage in DRAMs, based on overzealous (and erroneous) market forecasts, led most users of DRAMs to make double purchases.
Chipmakers, not having inventory control measures in place at the time like there are today, and thinking the illusion was real, built more fabs, purchased more equipment, and made more chips. 2000 ended with about $10 billion in excess chip inventory that took more than a year to work off.
ATMI got singled out by UBS, but any inventory correction will not only impact material suppliers such as ATMI, but the entire supply chain to the semiconductor manufacturers. Most at risk is the semiconductor equipment market, which has been struggling since the semiconductor market crash of 2001.
Top tier companies Applied Materials, KLA-Tencor, Lam Research, ASML, ASMI and Novellus recorded a drop in revenues of 30 percent to 55 percent in 2009, and are just now eeking out decent Q-to-Q revenue growth in 2010.
Our proprietary leading indicators, which show inflections in global economic activity several months out, show no signs of abating from upward growth through Q3. As part of our normal market analysis and forecasting, we have over the past 15 years correlated these indicators with semiconductor and semiconductor equipment growth. Shown below is the correlation with semiconductor revenues.
Looking forward, it does not appear at this time that any downturn in the semiconductor industry will rear its ugly head through at least Q3 2010.Source: The Information Network, USA.