ATMI (ATMI) was downgraded by UBS on Wednesday to neutral from buy and its price target was lowered to $19 from $24.
UBS checks indicate there will be some level of a second-half 2010 inventory correction in the semiconductor industry. ATMI furnishes chipmakers with ultrapure materials and related packaging and delivery systems used during semiconductor production.
DigiTimes first made the observation in an April 16 article. "Taiwan Semiconductor Manufacturing Company (TSM), 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 added that Taiwan Semi's inventory of analog integrated circuits is currently 50% higher than its safe level, while inventories of both network- and consumer-related IC segments have also exceeded their safe levels by about 20%, sending Taiwan Semi to undertake inventory control measures.
Double-booking, which may be a factor in Taiwan Semi's concerns, is what brought down the semiconductor industry in 2001 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. The year 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 (AMAT), KLA-Tencor (KLAC), Lam Research (LRCX), ASML (ASML), ASM International (ASMI) and Novellus (NVLS) recorded a drop in revenue of 30% to 55% in 2009, and are just now eking out decent quarter-to-quarter 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 the third quarter. 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 in the chart is the correlation with semiconductor revenue. Looking ahead, it doesn't appear at this time that any downturn in the semiconductor industry will rear its ugly head through at least the third quarter of 2010.
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