Semi companies to guide for seasonal to slightly below seasonal 3Q09:
We believe the significant re-stocking seen in 2Q09 will not be repeated in
3Q09, and guidance from semi companies will depend on their end market
and customer mix. Thus, companies with high wireless, consumer
exposures will likely see sub-seasonal trends in 3Q after a strong 2Q. On the
other hand, automotive- and industrial-exposed semi companies should see
re-stocking in 3Q09, and thus, seasonal to better-than-seasonal trends.
• Semi equipment should have seen strong order upside in 2Q with
possible estimate rises: Semi equipment companies likely saw a substantial
order snap-back in 2Q09 with improvement likely in 3Q09 as well.
However, most of the upside will likely be shrink related rather than
capacity. Thus, although there is no reason to believe that ASML will break
out of its trading range, we are more positive than negative going into
earnings. To break out of its trading range, there needs to be NAND capacity
related orders returning, which we don’t believe will occur till 4Q09 at least
because the major companies, Samsung and Toshiba, are looking for
economic recovery indicators to begin spending substantial capex again.
• Semi inventory likely to rise due to substantial re-stocking in 2Q09:
Semi inventory in 1Q09 decreased by 5 days to 70 days from 75 days in
4Q08; although slightly higher than the historical median inventory,
inventory at the end of 1Q09 was in line with the 3-year seasonal average.
1Q09 Logic inventory decreased by 10 days to 80 days (~1% higher than 3-
year seasonality) vs. all time high of 90 days (~22% higher than 3-year
seasonality) at end 4Q08.We believe 2Q09 inventory will rise; however,
unless 3Q build is as strong as 2Q or end demand keeps declining, we see
low risk of a double dip in 3Q itself, though 4Q09 risk remains.
• Semi estimate decline for 2009 now less; investors should pick stocks not
cycle: We expect a semi revenue decline of 18% for 2009 due to the recent
re-stocking trends. We recommend that investors build selected positions for
the next cycle; ASML is one of our top picks. Investors with the stomach for
high risk and momentum may also consider Neutral-rated Aixtron although
high multiples deter us from being more positive on the name.

Table of Contents
The semi cycle and semi stock prices....................................3
Where we are today .....................................................................................................3
The worst is likely over but risk of double dip not gone..............................................4
Our view on the semi cycle..........................................................................................6
End markets..............................................................................7
Valuation .................................................................................10
Global semiconductor valuations...............................................................................11
Inventory .................................................................................12
Inventory position in the semiconductor supply chain...............................................14
OEM inventory ..........................................................................................................15
AIXTRON .................................................................................16
High growth but expensive ........................................................................................16
Arm Holdings Plc....................................................................17
Risks still remain .......................................................................................................17
ASM International ...................................................................18
Front-end recovery to lag that of peers ......................................................................18
ASML .......................................................................................19
Stock should be a defensive incase of a double dip ...................................................19
CSR..........................................................................................20
No reason to turn positive till clear signs of share gains in new generation products20
Infineon Technologies ...........................................................21
Guidance should be at least seasonal .........................................................................21
SOITEC....................................................................................22
With no new major products, stay on sidelines..........................................................22
STMicroelectronics ................................................................23
Market focus will be on 3Q gross margin guidance and effectiveness of the cost
cutting ........................................................................................................................23
Valuation Methodology and Risks ........................................24