This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Chip Inventory Correction Won't Begin Next Quarter

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 - Get Report), Lam Research (LRCX - Get Report), ASML (ASML - Get Report), ASM International (ASMI - Get Report) 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.
Robert N. Castellano, Ph.D, is President of The Information Network, a leading consulting and market-research firm for the semiconductor, LCD, HDD and solar industries. Castellano is internationally recognized as one of the leading experts in these areas. He has nearly 25 years of expertise as an industry analyst. Castellano has provided insight on emerging technologies to many business and technical publications, including Business 2.0, BusinessWeek, The Economist, Forbes, Investor's Business Daily, Los Angeles Times Magazine, The New York Times, USA Today and The Wall Street Journal. He is a frequent speaker at conferences and corporate events. He has over 10 years' experience in the field of wafer fabrication at AT&T Bell Laboratories and Stanford University before founding The Information Network in 1985. He has been editor of the peer-reviewed Journal of Active and Passive Electronic Devices since 1985. He is author of the book "Technology Trends in VLSI Manufacturing," published by Gordon and Breach. His book "Solar Cell Processing" was published in 2009 by Old City Publishing. He received his Ph.D. in solid state chemistry from Oxford University.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
ATMI $33.98 0.00%
NVLS $16.97 0.00%
ASML $99.17 0.00%
ASMI $45.11 0.00%
KLAC $53.05 0.00%

Markets

Chart of I:DJI
DOW 17,689.86 -56.12 -0.32%
S&P 500 2,103.84 -4.79 -0.23%
NASDAQ 5,128.2810 -0.5040 -0.01%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs