FOCUS: Semiconductor Sector On Its Way To Recovery
Last update: 9/11/2009 1:30:00 AM
(This story was originally published Thursday.)
By Archibald Preuschat and Maarten van Tartwijk
Of DOW JONES NEWSWIRES
DUESSELDORF (Dow Jones)--European technology stocks rose Thursday as the latest set of revised outlook statements from semiconductor firms lent support to the view that a recovery in the sector is underway, fuelled by demand for the latest smartphones and portable computers.
Significantly, industry participants and analysts said the upturn isn't solely due to restocking, after inventories were drawn down during several quarters of poor performance in the segment.
"What we now see in the industry is an upward trend fueled by a combination of restocking, seasonality and growing demand especially from the U.S. and Asia," said Royal Bank of Scotland analyst Didier Scemama. "We are starting to see growing demand from the consumer, especially for portable computers and smartphones," Scemama said, adding that the semiconductor industry has shown steady month-on-month improvement now for five months and "the markets are starting to realize it now."
Dutch semiconductor equipment maker ASML Holding NV (ASML.AE) Thursday raised its outlook, saying it now expects net sales will be above EUR500 million both in the third and the fourth quarter and it expects bookings in the third-quarter will be "significantly above that level." ASML previously expected sales in the third-quarter to be around EUR450 million, and in the following quarters to be in a range of EUR400 million-EUR500 million.
ASML's improved guidance follows that of industry heavyweight Texas Instruments Inc. (TXN), which produces chips used in a wide range of items from cell phones to industrial machinery. Wednesday, Texas Instruments upgraded its outlook, saying it now expects earnings of $0.37 to $0.41 a share on revenue of $2.73 billion to $2.87 billion, up from previous predicted earnings of $0.29 to $0.39 cents a share on revenue of $2.5 billion to $2.8 billion.
Shares across the sector gained Thursday in Europe. By mid-afternoon, ASML rose 4.2% to EUR20.97, Germany's Infineon Technologies AG (IFX) was up over 3% to EUR3.94, and STMicroelectronics NV (STM), Europe's largest chipmaker, was up 2% to EUR6.59.
The latest outlook revisions come after Intel Corp. (INTC), the world's largest chip maker, last month boosted its third-quarter sales forecast on improving demand for its microprocessors.
Computer maker Dell Inc. (DELL) reported better-than-expected quarterly results and the world's largest PC maker, Hewlett-Packard Co. (HPQ), recently said it was seeing a stabilizing market.
Texas Instruments said it expects analog chips, which are widely used in consumer electronics, to be the biggest growth driver.
Demand for memory chips and data-processors, which are used in mobile phones, DVDs and video games has also strongly improved and chip makers are now looking to produce faster-working chips at lower costs, ASML company spokesman Lucas van Grinsven said.
ASML is the world's largest maker of lithography systems, which map out tiny electronic circuits on silicon wafers. It counts Intel, Samsung Electronics Co. Ltd. (005930.SE) and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) among its customers.
Meanwhile, as the mobile handset industry begins to emerge from its worst-ever decline in sales, mobile-phone manufacturers are trying to reverse a narrowing of their margins by introducing an eye-catching clutch of new devices that fuse communications capabilities with powerful computing and Internet functions.
Already, Apple Inc. (AAPL) has launched its latest iPhone 3GS. Nokia Corp. (NOK), the world's biggest handset manufacturer, recently announced a clutch of new devices including its first netbook, a smaller, lighter version of a lap-top. Sony Ericsson, a joint venture of Sweden's Telefon L.M. Ericsson (ERIC) and Japan's Sony Corp (SNE) will launch three new entertainment-oriented phones in the fourth quarter.
Improved consumer sentiment and attractive new phones should help the handset market return to volume growth, said Carolina Milanesi at research firm Gartner in a recent interview, which will further support the improvement in the chip segment.
"We have definitely started to see a little bit of light," she said. The chip industry has significantly underspent on capex over the last two years, and foundries have been particularly reticent to add capacity, said Evolution Securities director John McPate in a note.
ASML's higher bookings in the third-quarter are mainly a result of chip makers investing in new technology rather than restocking as "inventories at clients appear to remain very healthy," ASML's van Grinsven said. Still, the company remains cautious.
"It's hard to say if the pick-up in demand is sustainable, as this depends entirely on economic growth," van Grinsven said, and he declined to give any long-term demand forecasts.
-By Archibald Preuschat and Maarten van Tartwijk , Dow Jones Newswires; +49 211 13872 18; archibald.preuschat@dowjones.com (Jerry Dicolo in New York contributed to this article.) (END) Dow Jones NewswiresSeptember 11, 2009 01:30 ET (05:30 GMT)
