When Motorolla (MOT) warned of disappointing results, and then turned in revenues that were sequentially down 7.5% and down 19% from year earlier, it created some profound worries about the health of the semiconductor industry as a whole. [See my 7/19/2007 MOT summary] Now that more companies have reported, in particular Texas Instruments (TXN) on Monday, July 23rd, it seems that on the whole the industry is not in bad shape. The inventory correction from the second half of 2006 does seem to be over, although different companies are coming out of it with different timings.
A lot of detail about the industry can be gleaned from the TXN analyst conference held July 23. Texas Instruments revenues were also down, in this case 7%, from the year-earlier. But they bounced up 7% on a sequential basis and hit the midrange of management guidance. They said they turned away some unprofitable business at the low end of the cell phone market. Motorola, of course, makes cell phones; their failure to be able to market low end phones profitably really hurt them. Texas Instruments makes parts for the phones; that is working out better, at this moment. Orders were up 8% sequentially, inventories are in good shape, and 3G (high-end) mobile phone demand is growing. In order to meet the demands of the low-end market TI has brought out LoCosta (yep!) integrated cell phone chips that should start generating revenue in 2008.
Keep in mind that Microchip warned that it would only grow 2% sequentially, Xilinx was only up 1% sequentially, Altera was up 5%, AMD and Intel had mixed results. To me the overall picture is one of recovery with a real possibility of relative strength in Q3 due to the leanness of inventories. As individual companies win and lose contracts or consumer interest there will continue to be a lot of volatility against the general trend. This is particularly true of semiconductor chips used in the telecommunications sector. Right now analog chip design needs seem to be growing at a faster pace than digital; getting all these communications protocols right seems to be tougher than moving forward in digital processing.
In fact, it is time to start worrying about 2008. I believe that growth is going to be good due to continued rapid expansion in Asia and healthy expansion in Europe. The United States market is still a concern due to issues outside of semiconductors, notably housing, employment, and consumer willingness to spend.
Motorola investor relations page
Texas Instrument investor relations