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Morgan Stanley foresees 2003 upswing for chip market
By Crista Souza

11/13/2002 3:26 PM EST
URL: http://www.ebnews.com/showArticle?articleID=4400029

Chip inventories are depleted to such a low point that the industry has nowhere to go but up in 2003, according to analysts in Morgan Stanley's Global Semiconductor group.

Although semiconductor suppliers continue to have relatively high inventory levels, distributors have been unwilling to restock their shelves as they sell products, and inventory in end markets is "quite low," said Mark Edelstone, a San Francisco-based chip analyst with Morgan Stanley.

End-market inventories reached all-time lows in the second and third quarters of 2002 and are expected to decline another 10% in the fourth quarter, Edelstone said today during Morgan Stanley's quarterly semiconductor market update conference call.

"There will have to be an inventory-based uptick in demand for the industry as a whole at some point," he said.

Based on this assumption, Morgan Stanley is projecting 10% to 15% revenue growth for the semiconductor industry in 2003.

Much will depend on consumers' year-end purchases of products like DVD players and digital cameras. Stronger-than-expected 8% growth in semiconductor revenue during the third quarter was mainly attributed to OEMs building consumer-oriented products for anticipated holiday demand, analysts said.

Despite the modest increase, weak holiday retail performance could further delay an industry recovery.

"If we can get clean sell-through, we will end the year on a positive note, both in terms of inventory and projections of where we can go next year in terms of incremental growth," said Morgan Stanley supply chain analyst Rebecca Runkle. "If the consumer blinks, all bets are off."