Tuesday, October 03, 2017
Semiconductor Industry Association (SIA) released global sales figures for August today, with revenue rising 25% to $35.9 billion. It is the 14 straight month of year-over-year sales growth for the industry, and as one might expect, it was driven by an 85% pop in sales of dynamic access memory chips -- also called DRAM.
But what’s ahead?
According to Amit Daryanani at RBC Capital Markets, the SIA sees semiconductor sales rising 2% in 2017 from the $338.9 billion posted last year, and those forecasts are likely stale. Third party prognosticators predict low-teens growth, and Daryanani says those figures are “achievable based on how revenues are tracking so far with the DRAM/NAND supply/demand dynamic being the biggest swing.”
But Daryanani warns that investors might get spooked by too much of a good thing.
Given the strength in revenues observed in 2014 and 2013, this acceleration is certainly a good sign for the semiconductor industry, though if this continues to sustain at a mid/highteens rate, we think that investors could begin to worry about inventories building.
The PHLX Semiconductor index rose 0.6% today to close at 1,178.75. The index has climbed more than 41% over the past year, compared to a 26% gain by the iShares U.S. Technology ETF (IYW). The semiconductor index rose above the 1,000-point mark in March for the first time since the tech bubble burst in 2000, thanks to climbing chip industry sales and another year of over $100 billion in mergers and acquisitions.
Banchmark’s Gary Mobly notes that several factors will dictate the performance of the chip sector through the rest of 2017 and into next year.
The key factors dictating performance of the chip sector for the balance of 2017 and 2018 include: 1) sentiment toward the recent component inventory build in the electronics supply chain (fabless IC companies already depleting inventory, negatively impacting foundries), 2) sustainability of rising memory prices (data points indicate more DRAM and NAND flash supply coming in remainder of 2017 and 2018), 3) fruition of emerging end markets such as IoT/auto/AR/VR, 4) continuation of strong data center cap ex (or not -- our cap ex survey points to slowing cap ex growth), 5) global GDP growth, and most importantly, 6) whether the scarcity of good targets will dampen the M&A environment in the chip sector . The two factors that gives us the most concern include rising inventory levels in the electronics production supply chain and 2) skyrocketing investments aimed at growing China's memory and logic IC production.
The iShares PHLX Semiconductor ETF (SOXX) rose almost 0.67% today, led by a 1.7% gain by Micron Technology (MU).
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