Semicon mood: What analysts are saying

SAN JOSE, Calif. -- Semicon West is almost here! And unlike last year's event--which was depressing due to the IC downturn--the fab tool market is hot.

IC-equipment sales are now expected to grow 96 percent in 2010, according to VLSI Research Inc. Business in the first half was strong. Vendors are bullish--but cautious--for the second half.

Still, tool shortages--and extended lead times--are the norm. Semicon West runs from July 13-15 in San Francisco, Calif.

''Tool availability and quick delivery are the only issues for equipment suppliers as they head to Semicon West. The second-half looks brighter for chip makers; demand remains strong and capacity is tight across all nodes,'' according to VLSI Research, in a report.

''Up in the electronic food chain, demand from China is hot, while the U.S. is relatively stable. Some Taiwanese motherboard makers have turned cautious lately due to slower demand. Part of the slowdown is driven by Europe, where the situation remains tenuous, resulting in soft demand in that region,'' according to the report. ''Another reason is that many of these motherboard makers have a significant exposure in the netbook market. The later is under threat from Apple’s iPad, which is eating their lunch. Apple has boosted iPad production at Taiwanese manufacturers above 2M units a month, with the majority of models being with both Wi-Fi and 3G.''

Here's what others say about the mood entering into Semicon in the fab tool and IC sectors:

Edwin Mok, an analyst with Needham & Co. LLC, on the fab tool market:

''We expect a positive tone at next week's Semicon West to provide a near-term catalyst for semi equipment stocks, as our checks suggest 2Q '10 orders and revenues are tracking at the higher end of guidance and the order momentum has extended into 3Q '10.

We do not agree with industry Bears' call for the semi equipment cycle to peak this year, and reiterate our belief that semi equipment spending will grow in 2011. We offer 6 reasons that support our view: 1) Despite the strong rebound in 2010, capital intensity remains relatively low; 2) we expect foundry and IDM capex to grow in 2011 as the combined foundry/IDM capex in 2010 remains below levels seen in 2004-07;

3) most memory chipmakers (even small ones) are generating strong cash flow now, which will enable higher spending in the coming year should industry conditions remain strong; 4) we believe smartphones are driving incremental memory chip demand, not only in NAND but also mobile-DRAM; 5) we see NAND capex catching up in 2011 as NAND supply remains tight in 2H10 due to under-investment; and 6) we believe adoption of TSV will start in 2011, which will require significant grow in back-end capex.''

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C.J. Muse, an analyst with the Barclays, on the equipment market said:

''While focus remains on macro/downstream, look for investors to walk away from Semicon with vision of sustained equipment cycle with orders not peaking until 1H '11 at the earliest, for positive earnings revisions this earnings season, superior peak to peak earnings this cycle, and for shares offering meaningful upside potential once macro haze subsides.

Fueled by an arm's race in the foundry arena and two years of underspending by memory makers, we see upside to wafer front-end (WFE) spend now to $27 billion (old $26 billion) in 2010. Layer in capped 2010 spend due to immersion litho constraints, expected new memory capacity requirements of 400k/wspm, increasing customer breadth, and capital intensity trending higher, and we see clear path to $34-36 billion in WFE spend in 2011.''

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Paul McWilliams, an analyst with Next Inning, on Applied Materials Inc.:

''Given what we've heard about persistently tight capacity, I continue to believe Applied Materials (AMAT), the number one player in the fabrication equipment business, will see strong demand going forward. I continue to believe AMAT is selling below what I view as a fair valuation and think there is a very good chance the company will guide above expectations when it reports the results for its July ending quarter.''