T-Waves

[Tetres]

My Explanation on my Negative Semi-Opinion
I have been asked by several readers to expound on why I am so negative on the Semi-conductor group, as my views seem to be 180 degrees from anal-heads and the talking-butt-heads in the media ...Yes I am still very negative on the Semi-sector as a whole, especially after this irrational recent run-up in stock prices as the valuations are now even more out of whack, and it is ridiculous on how the media feeds this hype. They still believe the promote daily that the Semi-conductor industry will lead us out of the recession...this just is not so. What they fail to do is a simple supply/demand analysis, along with a driver analysis...according to my research the P/C sector is in a trough period and will not see an uptick until Q3 of 2003, the Mobile Phone industry is troughing as well and I do not expect to see a bottoming here until Q2 of 2003. The Semi-conductor industry lacks sufficient drivers currently to sustain growth and with out such, will continue to falter. Especially the semi-equipment makers as capex expenditures are pushed out and/or canceled.

Global sales of chip making equipment fell 18.4% in June from a year earlier, a sharp slowdown from the heated pace of declines over the past year. The media recently only focused on a snap shot of information when they forecasted that the semiconductor sector has bottomed...the recent book-to-bill numbers. While I will concur that it appears that the industry may be applying the brakes on the recent free-fall, and is starting to trough, it has not done a reversal from last year's record-breaking slump. Sales of equipment to make and test microchips rose to $1.85 billion in June, the highest since September, however this is a seasonal blip spurred by over an historic over estimation on the demand front with regard toward restocking ahead of Q4 needs.

However, forward-looking data, has recently cast doubts on the recovery's prospects. remember folks it is not as important to see where you have been, when evaluating a sector...but where you are headed. The latest figures from the North American industry showed a 2% fall in July chip equipment orders, a leading indicator of future sales. The data for June continued to show relative strength in Asia's emerging semiconductor centers, with Taiwan posting 49.3% growth to $463.1 million while South Korean sales fell 29.0% to $101.1 million. Sales in North America fell 33.0% to $473.6 million, while Japan also posted a drop of 37.9% $350.3 million and Europe fell 40.6% to $184.5 million. Quarterly figures showed a 34.0% drop in equipment sales in the April-June period from a year earlier to $4.66 billion. Taiwan was the only region showing growth in the quarter, with a 10.7% rise to $1.05 billion. Japan posted the largest drop of 55.7% to $786.3 million.
Thomas Weisel issued a research report about inventory levels in the electronics supply chain this week. They conclude that semiconductor manufacturers hold the most inventory at 64% of the total which compares with 33% in the second quarter of 2001.  They are looking at a modest recovery in spending by non-PC chip segments. But are less optimistic that the PC chip business will participate to the same extent." He also expects DRAM manufacturers to invest at low levels. A picture is worth 10,000 words, I have an extensive data base of B-2-B data.... T-Waves Book to Bill Chart  http://www.twaves.com/T-waves%20Book%20to%20Bill%20Chart.htm

Ironically: Salomon Smith Barney today comes out and reduces their semi industry growth forecast for 2002 to +0.5% from +4% and for 2003 to 12% from 21%, and projects 17% for 2004; semi shipments in 1H02 had been running slightly above trend, but firm believes this was due to excess inventory builds being worked off; with the exception of wireless handsets, demand in most segments remains slow and a seasonal uptick in 2H02 may be weaker than normal. Top picks are ADI, TXN, MU, and INTC. Maybe they are reading T-Waves !!

Best of Luck
Steve