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3Q wrap. 3Q revenues came broadly in-line with our expectations. 4Q guidance for a Q/Q decline of 2-8% was in- line with our expectations but slightly lower than consensus. Analyst estimates for 1Q12 have been revised down accordingly, and consensus is now expecting low single digit decline Q/Q. We believe these are reasonable expectations unless the Thai flood related supply issues deteriorate.
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TSMC gaining share w/ an improving ASP. In 3Q, TSMC took share at both advanced and older nodes. Additionally, it has seen a secular improvement in ASP this cycle. We believe this is the result of mix shifts that are driven by mobile Internet devices and a key reason we are positive on TSMC.
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Semi inventory getting worked down: Our analysis shows that foundries are now shipping less than their customers in 3Q and 4Q, indicating inventory levels are coming down.
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Bottom Line: A look at valuation, cyclical indicators, inventory levels, etc. would all suggest that we are close to the trough. The only question is whether there is one more leg down, particularly due to the uncertainties associated with supply. We continue to like TSMC as a structural story on mobile Internet devices but would look to become more positive on other stocks in the sector if/when valuations correct or if the trough is confirmed.



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