2Q09 Earnings Preview
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Positive Bias to 2Q Results. June qtr semi earnings kick off on Tuesday,
14th July with INTC and ALTR reporting results after market close.
Consistent with the 19 semi preannouncements thus far (35% of semi
market cap), we expect JunQ revenues to be largely in-line to modestly
above our bottoms-up estimate of a +4.8% q/q growth, consensus is at
+5.2% q/q and normal seasonal is +0.8% q/q. SIA data from Apr & May
indicate that if June were to follow normal seasonal patterns, JunQ IC exmemory
revs will be up 13.7%. Consistent with our findings from our Asia
trip in early June, the three largest semi end markets – PCs (39% of revs),
handsets (19%) and consumer electronics (20%) are rebounding off of MarQ
lows as OEMs and distributors began to replenish semis especially in
consumer oriented products (~40% of semi revs). As a result of the firming
orders, we expect IC fab utilization levels to recover to 61% in 2Q (from 57%
in 1Q) and improve gross margins by 380bps q/q to 42.7% from 38.9%.
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Expect Seasonal 3Q Guidance. Despite strong sequential growth in C2Q,
we continue to believe that book to bill is running about 1.05 to 1.10 –
implying that companies should provide guidance that approaches normal
seasonal (up 4 to 10%), consensus is currently at 6.1% q/q. By end-market,
due mainly to timing of new model builds, we expect PCs to guide
seasonally and handsets slightly below seasonal. We continue to believe
that chip companies with auto exposure offer the best chance for upside in
3Q. Current consensus estimates imply 5.1% 4Q q/q growth and a 19%
decline in ’09 revs; significantly below PC (-7% y/y in 2009) and handset
(-13%) unit forecasts indicating that semi companies continue to under-ship
end-demand. Additionally any pick up in industrials and enterprise IT
spending could provide both revenue and gross margin upside to 2H
estimates. While it is difficult to find tangible data points for an IT spending
pick up, the cyclical bottom argument is compelling as peak to current IT
spending across multiple metrics is down more than the 2001 downturn
despite the overbuild prior to 2001 – this includes servers (-26.4% peak to
current vs. -11.7% 2001 peak to trough), corporate PCs (-21.1% peak to
current vs. -12.9% 2001 peak to trough), CSCO enterprise orders (-36.0%
peak to current in-line with -36.1% 2001 peak-trough) and Enterprise
Application Licensing sales (-65.0% peak to current, vs -56.0% 2001 peaktrough