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.
More data:
Motorola investor relations page
Texas Instrument investor relations
Showing posts with label Texas Instruments. Show all posts
Showing posts with label Texas Instruments. Show all posts
Wednesday, July 25, 2007
Tuesday, April 24, 2007
Altera, Texas Instruments See End to Chip Slowdown
Texas Instruments (TXN) and Altera (ALTR) issued quarterly results and held analyst conferences yesterday. Both have reason to believe that general demand for semiconductor chips hit bottom in Q1 2007 and is rising Q2. Are they right?
You can see my full summaries of the conferences from these links: TXN; ALTR.
Texas Instruments (TXN) is the bigger player, with Q1 revenues of $3.2 billion, down 8% sequentially and down 4% from Q1 2006. They believe Q2 revenues will be $3.32 to $3.60 billion, which would be up 3 to 12%. Their main reason for the belief is that daily sales were up 20% in March and April compared to February. It takes time for a sale to be shipped and booked as revenue, but some of that 20% increase should start appearing in Q2.
Altera (ALTR) is more of a niche player, specializing in programmable logic devices like FPGAs and CPLDs. Their Q1 revenue was $305 million, down 4% from Q4 2006 but up 4% from Q1 2006. The guided revenues to 1% to 4% sequential growth for Q2. They were more cautious about the future, saying they are seeing a slow rebound, but some end markets are still weak.
Both companies and many other chip makers argued that the downturn that started roughly in Q3 2006 was more a result of inventory management changes than long-term demand weakness. It seems that in 2006 many finished goods makers decided to move to just-in-time acquisition of parts. In the transition to that they used up their own inventories and paused their buying. They only started ordering specific parts when they were ready to use them. This caused a slump in demand at the manufacturing end. Yet the chip makers could not cut their own inventories because the end users still wanted rapid shipments after orders were made. Another factor was macroeconomic fear for 2007. So far those fears have been wrong. Consumer demand has been steady in the U.S. and markets like China, India and Germany have been booming.
Nothing is certain in the world of economics, but there is a consistent story here: in order to meet demand late in 2007, end-product makers are going to need to seriously bump up their chip orders. They can no longer just reach into their own inventories, which are too lean to allow that.
Some end markets may be stronger than others. Texas Instruments complained (following Motorolla, which it supplies chips to) that the cell phone market has been increasingly difficult to make a profit in. Their solution is to continue to integrate more functionality on each chip to cut costs and restore the profit equation.
Altera is in a better position in some ways than TI. Their products are more specialized. But in Q1 that had a 35% sequential decrease in their Hardcopy chips for computer storage systems. They believe that is a one-quarter event, but added that since these chips are custom manufactured, it takes some time to go from an order to shipping and getting paid.
I have to wonder how wise it is to fight it out in the cell phone market. It is true that it is a huge market and 3G is just coming into play. But it seems that a lot of chip makers have their eyes on the same pie.
You can see my full summaries of the conferences from these links: TXN; ALTR.
Texas Instruments (TXN) is the bigger player, with Q1 revenues of $3.2 billion, down 8% sequentially and down 4% from Q1 2006. They believe Q2 revenues will be $3.32 to $3.60 billion, which would be up 3 to 12%. Their main reason for the belief is that daily sales were up 20% in March and April compared to February. It takes time for a sale to be shipped and booked as revenue, but some of that 20% increase should start appearing in Q2.
Altera (ALTR) is more of a niche player, specializing in programmable logic devices like FPGAs and CPLDs. Their Q1 revenue was $305 million, down 4% from Q4 2006 but up 4% from Q1 2006. The guided revenues to 1% to 4% sequential growth for Q2. They were more cautious about the future, saying they are seeing a slow rebound, but some end markets are still weak.
Both companies and many other chip makers argued that the downturn that started roughly in Q3 2006 was more a result of inventory management changes than long-term demand weakness. It seems that in 2006 many finished goods makers decided to move to just-in-time acquisition of parts. In the transition to that they used up their own inventories and paused their buying. They only started ordering specific parts when they were ready to use them. This caused a slump in demand at the manufacturing end. Yet the chip makers could not cut their own inventories because the end users still wanted rapid shipments after orders were made. Another factor was macroeconomic fear for 2007. So far those fears have been wrong. Consumer demand has been steady in the U.S. and markets like China, India and Germany have been booming.
Nothing is certain in the world of economics, but there is a consistent story here: in order to meet demand late in 2007, end-product makers are going to need to seriously bump up their chip orders. They can no longer just reach into their own inventories, which are too lean to allow that.
Some end markets may be stronger than others. Texas Instruments complained (following Motorolla, which it supplies chips to) that the cell phone market has been increasingly difficult to make a profit in. Their solution is to continue to integrate more functionality on each chip to cut costs and restore the profit equation.
Altera is in a better position in some ways than TI. Their products are more specialized. But in Q1 that had a 35% sequential decrease in their Hardcopy chips for computer storage systems. They believe that is a one-quarter event, but added that since these chips are custom manufactured, it takes some time to go from an order to shipping and getting paid.
I have to wonder how wise it is to fight it out in the cell phone market. It is true that it is a huge market and 3G is just coming into play. But it seems that a lot of chip makers have their eyes on the same pie.
Thursday, February 8, 2007
Semiconductor Inventories and Demand
I am fascinated by technology, by the businesses that create, manufacture, and sell it, and by the human factors in management. Listening to executives from Atmel, Linear Technology Corporation, Microchip, Maxim, Texas Instruments and Xilinx at their analyst conferences explaining Q4 results, all these factors converge. Q4 2006 was not the best quarter for the semiconductor industry. While most companies had year-to-year improved revenues, most were sequentially down from Q3. Many predicted further deterioration in revenues for Q1 2007. The down trend was widely attributed not to decreased demand, but to reductions of inventories at customers. To some extent seasonality is involved, as when end-products are aimed at consumer holiday buying and had to be produced in Q3 in order to be incorporated into products and shipped back across the Pacific to sell to spendthrift Americans.
So what investors want to know is whether this is the beginning of a downward trend, or just a temporary adjustment of inventories. It is also important to consider how companies are competing and may buck any trend.
Atmel (ATML) was down 5% sequentially and up only 2% year-over-year. They have never really recovered from the 2001 bust, so don't indicate any kind of trend.
Linear Technology Corporation (LLTC) did worse, down 8% sequentially but up 1% from the year-earlier quarter. They expect revenues to fall another 4% to 7% in this March quarter.
Microchip (MCHP) was down 6.3% sequentially, but up 6.9% year-over-year. They are optimistic that Q1 2007 will be the bottom of the cycle and are predicting that revenues will be flat sequentially. [I own MCHP stock]
Maxim (MXIM) escaped relatively unscathed, with revenues down only 1% sequentially but up 11% from Q4 2005. However, they are predicting that Q1 2006 revenues will be down 3% to 6%.
Texas Instruments (TXN) revenue was down 8% sequentially but up 4% from year-earlier.
Xilinx (XLNX) revenue was down 3.5% sequentially, but flat from the year earlier. They guided to flat to down 5% sequentially for Q1.
I think there was some tightening of end-user inventory because of uncertainty over the 2007 economy. Since the 2007 economy looks rosy at the moment, I think that when demand holds up the end users (electronics device makers) will have to start rebuilding inventories. But remember that each company produces chips in multiple categories. Slack or robust cell-phone demand will not impact all companies equally. Defense spending or cutbacks hurt some companies more than others.
When we get Q1 2006 results I'll be looking back to see which executives gave good guidance. Of course unfounded optimism is now suspect: it seems like an attempt to manipulate share prices upward.
So what investors want to know is whether this is the beginning of a downward trend, or just a temporary adjustment of inventories. It is also important to consider how companies are competing and may buck any trend.
Atmel (ATML) was down 5% sequentially and up only 2% year-over-year. They have never really recovered from the 2001 bust, so don't indicate any kind of trend.
Linear Technology Corporation (LLTC) did worse, down 8% sequentially but up 1% from the year-earlier quarter. They expect revenues to fall another 4% to 7% in this March quarter.
Microchip (MCHP) was down 6.3% sequentially, but up 6.9% year-over-year. They are optimistic that Q1 2007 will be the bottom of the cycle and are predicting that revenues will be flat sequentially. [I own MCHP stock]
Maxim (MXIM) escaped relatively unscathed, with revenues down only 1% sequentially but up 11% from Q4 2005. However, they are predicting that Q1 2006 revenues will be down 3% to 6%.
Texas Instruments (TXN) revenue was down 8% sequentially but up 4% from year-earlier.
Xilinx (XLNX) revenue was down 3.5% sequentially, but flat from the year earlier. They guided to flat to down 5% sequentially for Q1.
I think there was some tightening of end-user inventory because of uncertainty over the 2007 economy. Since the 2007 economy looks rosy at the moment, I think that when demand holds up the end users (electronics device makers) will have to start rebuilding inventories. But remember that each company produces chips in multiple categories. Slack or robust cell-phone demand will not impact all companies equally. Defense spending or cutbacks hurt some companies more than others.
When we get Q1 2006 results I'll be looking back to see which executives gave good guidance. Of course unfounded optimism is now suspect: it seems like an attempt to manipulate share prices upward.
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