SAN FRANCISCO An investment banking analyst cut his forecast for 2006 semiconductor industry growth and said the Philadelphia Stock Exchange's SOX semiconductor index could decline in December given continued supply chain inventory reductions, impending first quarter seasonal weakness and continued negative year-on-year industry revenue comparisons.
Based on weaker-than-expected October shipments, Craig Berger, an analyst with Wedbush Morgan Securities, cut his firm's 2006 chip industry growth estimate to 8 percent from 9 percent. Citing an atypically early seasonal build-up for computing, consumer and wireless shipments ahead of the holidays, the firm said it expects weaker-than-normal fourth quarter IC shipments.
In a research note published Sunday (Dec. 3), Berger said October semiconductor shipments were worse than historical median following reasonably strong third quarter shipments. Berger forecast that the rest of 2006 should play out in a "seasonally normal fashion," with chip shipments waning in December.
Berger originally forecast semiconductor industry growth of 11 percent for 2006. Sunday's action represents the third time he has cut Wedbush's forecast this year.
Year-over-year chip shipments decelerated to year-to-year growth of 9.2 percent in October after peaking at 11.7 percent in July, Berger said. History, he added, suggests that the next chip up cycle could begin during the second half of next year.
Microprocessors, NAND flash and DRAM posted strong trends in October, according to Berger. The industry is seeing healthy pricing trends with IC average selling prices (ASPs) down only 3.7 percent year-to-year and total semiconductor ASPs down just 1.2 percent year-to-year in October, in contrast to typical price declines of 10 percent per year or more, the analyst said. Chip prices improved in October across microprocessors, NAND flash, DRAM, discretes and analog segments, with some weakness in NOR flash memory and DSP chips, according to Berger.
Last week, the Semiconductor Industry Association (SIA) reported that October worldwide chip sales reached $21.9 billion, setting a new monthly record for the fourth consecutive month. But SIA President George Scalise warned that a slowdown may be looming based on global economic trends.