How is the semiconductor market doing? Well, the stocks are setting up for a nice rebound, according to numerous rather bullish reports today. Sources of strength include, of course, handset sales requiring the latest wireless semiconductors, and the server market.
Craig Ellis with Caris & Co. writes that his checks of retail outlets over the weekend suggest there’s plenty of interest in smartphones, which should be helpful to Broadcom (BRCM) and Skyworks Solutions (SWKS):
Foot traffic and purchase intensity remained high across various channels with dominant Apple iPhone 4S�s popularity resulting in select stock-outs at Apple stores and broadly at Veri- zon outlets with a 1-2 week shipment lag, while Samsung�s Galaxy SII and GSII Skyrocket followed in popularity with Mo- torola�s Droid RAZR and HTC�s Vivid trailing further behind and with RIMM and LG barely visible.
Ellis thinks Apple’s (AAPL) iPhone 4S in 16-gigabyte and 32-gigabyte versions was the “best seller” in all outlets, and were stocked at at most Verizon Communications (VZ) wireless stores.
Barclays Capital’s C.J. Muse writes that semiconductors should “rally into year end” given underperformance in the last two weeks, by which Muse is referring to a 5% decline in the Philadelphia Semiconductor Index.
Muse if focused on mid-quarter updates this week from Novellus Systems (NVLS), which is tonight, and from Texas Instruments (TXN) on Thursday, along with Altera (ALTR).
ThinkEquity’s Sujeeva De Silva, in contrast to Muse, looks at recent outperformance, citing a 9.5% rise last week for the firm’s own ThinkEquity Semiconductor Index (TSI).
“We believe the recent rally in semiconductor stocks reflects a stabilizing macro view, indications of limited impact from Thailand flooding and conservative expectations embedded at current levels.”
Some estimates for notebook computers are finally rising to reflect optimism around the “Ultrabook” computers that Intel (INTC) has been promoting and that are starting to be produced by a number of vendors. That could help the outlook for PC microprocessor sales in 2012, and De Silva recommends Intel�as one of his “top picks.”
Piper Jaffray’s Gus Richard writes today that chips for “cloud” computing infrastructure, as well as for some tablet computers, smartphones, and e-readers, are rising according to data out of contract chip manufacturers:
We believe multiple tier 1 and tier 2 foundries have seen a recent increase in orders for wafer starts. Moreover, some of these orders are being expedited with associated expedite fees. Thus, some orders are an urgent request for product and customers are willing to pay up to get the product early and need to ship product as soon as possible. This is a positive sign for Q1 demand, but it is not broad-based. At a minimum, we think the recent increase in foundry activity marks a stabilization in chip demand. This gives us a bit more confidence in our estimates for some sub-sectors of the chip market.
JP Morgan’s Christopher Danely also writes today that “semiconductor fundamentals have bottomed,” based in part on data from the Semiconductor Industry Association out on Friday that showed a 1.8% decline in three-month rolling average sales from August through October, steeper than the 1.7% drop the previous three months.
“As orders are stable and book to bill for 1Q12 appears to be near parity. We expect upside to estimates in 1Q12 as orders improve, and we would continue to buy stocks.”
Moreover, there has to be a snap-back at some point, as “semiconductors are undershipping end demand,” he writes, given that semiconductor unit sales will be down 6%, altogether, in second half of this year, while PC unit sales are still going to be up 5% and handsets will be up 8%.
Although Danely’s colleague, hardware analyst Mark Moskowitz, cut his outlook for server sales today to 3% unit growth from 4% growth, that doesn’t concern Danely as far as Intel. Intel still has not much competition from Advanced Micro Devices (AMD) in server chips, and it can look forward to shipments of its new “Romley” server chip come the spring.
Romley is a theme numerous analysts cited in being positive about Intel today.
Danely maintains an Overweight rating on Intel shares.
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