This is not time to own semiconductor stocks, either chip makers or equipment manufacturers. According to the Semiconductor Industry Association, worldwide sales of semiconductors were $14.2 billion in February, a decline of 30.4% compared to February 2008 sales of $20.3 billion. This is a continuation of the decline observed from the prior year. Sales were down by $1.1 billion from January 2009 levels of $15.3 billion.
‘The global semiconductor industry is going through one of the steepest corrections in its history,’ said SIA President George Scalise. ‘While it would be premature to conclude that the sales have hit bottom, there are some indications that the rate of decline has moderated from the final quarter of 2008.’
‘Demand for semiconductors is likely to continue well below 2008 levels for the next few quarters with a gradual recovery to follow as the global economy recovers,’ Scalise concluded.’
There are similar problems within the semiconductor materials market. The materials market was flat in 2008 as compared to 2007. Semiconductor materials market sales reached $42.7 billion globally in 2008. The industry group for the semiconductor materials market, SEMI, reports that “the wafer fabrication materials and packaging materials $24.1 billion and $18.8 billion, respectively.” These sales figures represent a decline from 2007.
“The global wafer processing equipment market segment decreased 31%; the assembly and packaging segment decreased 28%; the total test equipment sales decreased 32 percent. Other front end equipment sales declined by 32 percent”
We believe the market is discounting the recovery somewhat ahead of itself. It remains to be seen if the global economy will pick-up before 2010. Even if it does, the semiconductor market may lag the recovery. The companies we have on our watch list, Altera Corporation (ALTR), Analog Devices (ADI), Intel (INTC), QLogic Corporation (QLGC), Taiwan Semiconductor (TSM), Texas Instruments (TXN), and Xilinx (XLNX), are priced as though the recovery is already here. Sales and earnings will continue to decline through 2010. We would wait until there are signs of recovery before being buyers of semiconductor stocks.