Red flags seen as TSMC, UMC post monthly sales

SAN JOSE, Calif. - There is good news and bad news in the IC industry.

Good news: Taiwan's leading foundries posted strong monthly sales. Bad news: There are weak sales and inventory concerns among Taiwan ODMs, which provide a pulse regarding the overall IC market.  

Silicon foundry giant Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) announced its net sales for July of 2010. Net sales were approximately NT$36.16 billion $1.138 billion), an increase of 3.0 percent over June 2010 and an increase of 19.4 percent over July 2009. Revenues for January through July 2010 totaled NT$226.97 billion ($7.147 billion), an increase of 62.3 percent compared to the same period in 2009.

Rival United Microelectronics Corp. also announced its net sales for July of 2010. Net sales were approximately NT$10.82 billion $340.8 million), an increase of 4.7 percent over June 2010 and an increase of 22.8 percent over July 2009. Revenues for January through July 2010 totaled NT$67.281 billion ($2.12 billion), an increase of 59.15 percent compared to the same period in 2009.

Still, there are red flags in the market. ''Increasing inventories at some of the biggest foundry customers have raised fears about the future revenue growth,'' according to VLSI Research Inc., in a report.

''Sales of the top fabless suppliers jumped 4.5 percent in Q2, closely matching Q1 growth. Meanwhile, inventories rose 11 percent in Q2, following a 13 percent jump in Q1.  More importantly, inventory-to-sales ratio for the top fabless suppliers jumped to 24.6 percent in Q2, compared to 23.1 percent in the previous quarter.  By historical standards, this ratio is still relatively healthy, but it could spell trouble for the industry if it continues to grow at these rates in the coming quarters,'' according VLSI Research.   

Gary Mobley, an analyst with Benchmark, sees mixed signals in a new report. The report tracks monthly sales data for 26 Taiwanese ODMs and 27 Taiwanese chip companies.

Based on the data, ''notebook unit sales were weak,'' he said. ''The top notebook ODMs reported a relatively steep month-over-month sales decline for July. Combined, Quanta and Compal reported a 16 percent month-over-month sales decline (24 percent month-over-month decline in unit shipments). Normally, July notebook unit shipment increase 4-to-6 percent month-over-month. On a year-over-year basis, Quanta and Compal reported a 27 percent sales increase for July.''

Not all is lost, however. ''Despite a weak start, the achievement of Quanta and Compal’s original Q3 CY10 sales target is possible,'' he said. ''The month of July was likely weak due to an early-than-normal back to school channel build.''
 
On the other hand, ''non-notebook sales were decent,'' he said. This includes shipments of cell phones, LCD panels and other types of electronics goods.

''Sales for Pegatron and Asustek Computer, two major proxies for desktop PC sales, combined to report a 6 percent month-over-month sales increase. The July sales increase was more than likely a simple rebound after three consecutive months of sales declines. LCD panel sales were down approximately 4 percent month-over-month,'' he said.