World semiconductor sales fell by more than 35% in February, according to Commerzbank Securities, wh...
World semiconductor sales fell by more than 35% in February, according to Commerzbank Securities, which is recommending an underweighting in the global semiconductor sector.
The bank says February sales figures of $10.01bn, following drops in global sales in the previous three months, indicate the problems faced by the sector.
Steve Woolf, an analyst at Commerzbank Securities, says: 'Underlying end-product demand remains weak and inventory restocking has created a false dawn unless further improvements emerge shortly. We retain a negative stance.'
The decline in February, he says, followed a 39.8% decline in January, a 43.1% drop in December and a 42% fall in November. Even worse could be on the horizon, according to the group.
Woolf says: 'We are cautious about sector share prices ahead of the first-quarter reporting season in mid-April. We believe that potential second-quarter guidance could put pressure on second-half 2002 earnings expectations of recovery, and we reiterate our sell recommendation on STMicrosystems and rate Philips a reduce.'
What sales there have been have been driven by restocking depleted inventories, says Woolf. He adds: 'This looks unsustainable, however, even in the short term. Weak US durable goods data for February suggests that near-term orders are at risk unless improvements emerge quickly.
'We believe evidence of an increase in underlying demand is required to support current valuations.'
Investors will not have to wait long for earnings to be announced, with 12 global semiconductor companies reporting first-quarter earnings between mid-April this week and 20 May.
There is some cause for optimism in some parts of the semi-conductor industry, particularly in D-Ram production, driven by an ever-growing demand for memory.
Woolf says: 'D-Ram prices increased 24.4% month on month in February, driving subsector revenues 21.4% higher. However, we note that D-Ram volumes fell by 2.4% over the same period. D-Ram price upgrades offer positive earnings momentum for companies such as Infineon but a large Siemens placing appears likely.'
The D-Ram trend, however, could be the cause of increased volatility in the semiconductor sector.
Woolf says: 'A reliance on memory sales has been responsible for a large proportion of historic sector volatility and, while current levels remain well below the historic level of 25.1% of total semiconductor sales, an increasing trend would be cause for concern for future volatility.'
UBS Warburg is recommending an overweighting in the semiconductor sector but Pip Coburn, analyst at the group, concedes valuations do raise concerns that conditions may be forming, which could lead the bubble to burst.
Coburn says: 'We like semiconductors and are happy with our overweight position at the moment. But we believe the group may be vulnerable as we approach mid-year. We will look to trim our semiconductor positions quickly if we see signs that the second half of 2002 may not pan out as expected. We will be tracking key semiconductor-related triggers more closely than usual over the next two months.'
UBS says earnings are achievable.
D-Ram continue to offer opportunities.
Demand for memory growing.
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