The 2009 International Technology Roadmap for Semiconductors, in all its glory, is available right here:

http://www.itrs.net/Links/2009ITRS/Home2009.htm

Everyone should have a copy.   I strongly recommend reading it when it is raining outside.   Some of the tech transitions have been visible for a over a decade but they are the very reason business is booming in chip-land.   Stay in tune……

A bit of a linkfest here – very much noteworthy:

A Tie up between Intel and TSMC Fizzles

And one more link from EE Times on the same story….

http://www.eetimes.com/news/latest/showArticle.jhtml?
articleID=223100754

Fascinating…. No matter how hard they try, they just can’t seem t break from the PC-centric mold.

Somewhat related, Global Foundries cuts a deal with ARM – which, based on what I hear, means they landed 150 new customers.

Thoughts on this are more than welcome……

Overall, Applied’s report was not too bad – particularly when one allows for the fact that it takes a ton of business to move the earnings needle.   Now, the stock is acting poorly on the heels of this report and I will go on the record and say that if you are looking to purchase shares of a WFE company,  it might be better to focus on Lam, Novellus, Varian, ASML, KLA-Tencor and perhaps even little ol’ Mattson (who appears to be gaining some market share in Etch but at the same time is having a problem procuring components).   Along with that I would say some of the ATE houses warrant a view – Teradyne and LTX-Credence are two I personally prefer.

One question that many folks are pondering is whether or not the supply chain is capable of supporting the demand panic that is currently taking place.  Over and over we hear that component suppliers are strained and lead times are stretching out.    Much of this is due to the attrition, er, decimation, that has taken place in the supply chain over the last seven years.

Innumerable companies have been leaving the semi supply chain – either voluntarily or, simply going out of business.   Clearly this has an impact on the ability to ramp tool output.    In a roundabout way, this was noted on the AMAT conference call:

Question:   Wenge Yang – Oppenheimer

Hi, this is Wenge for Gary. You commented on supply chain constraints and combined with your recent hiring of executive supply chain management. I want to get your opinion on what kind of impact of the supply chain constrained on your costs and operating expenses in terms of overtimes, a higher cost of goods, and also the lead time strategy.

Answer:   George Davis – AMAT EVP and CFO

Sure. The major impact that we had from the supply chain difficulty this quarter was seen in higher expediting costs and really the costs of logistics in general were above normal and we are seeing improvements in the supply chain in the second quarter. I think we still have a little bit or work – workout to do, but the – there is no connection really between our decision to hire an external party and the challenges we are having here. As you know, we are going to be building up our capability in Singapore to strengthen our Pan-Asia supply chain and really the recent hire is in connection with that activity.

*.*.*

Ahh…   “higher expediting costs”…..   We’ve been discussing this on the subscriber/advisory mailing list.   To put it mildly, the semi-capital equipment food chain is, once again, in a phase where customers are saying,  “We don’t care what it costs, we need it yesterday.” The mere fact that Applied is paying expedite fees speaks volumes.  We’ve seen it so many times – those crazy cyclic spikes in business activity.

Some things never change….

The three month moving average of bookings has now crossed the $1 billion mark – and in the coming months it looks like it will go even higher.   Billings are currently a shade below that mark but should get there next month.   Visibility is improving and lead times are stretching out which implies that this cycle will  last longer than many anticipate.

Somewhat related, distributors for consumables and equipment components are openly talking about shortages.  Obviously the carnage that took place in the supply chain has folks scrambling.

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SEMI Book To Bill Numbers (Press Release)

SAN JOSE, Calif. – February 18, 2010 – North America-based manufacturers of semiconductor equipment posted $1.13 billion in orders in January 2010 (three-month average basis) and a book-to-bill ratio of 1.20, according to the January 2010 Book-to-Bill Report published today by SEMI. A book-to-bill of 1.20 means that $120 worth of orders was received for every $100 of product billed for the month.

The three-month average of worldwide bookings in January 2010 was $1.13 billion. The bookings figure is up 24.1 percent from the final December 2009 level of $912.7 million, and more than three times higher than the $277.2 million in orders posted in January 2009.

The three-month average of worldwide billings in January 2010 was $946.3 million. The billings figure is 11.3 percent greater than the final December 2009 level of $850.1 million, and 62.0 percent more than the January 2009 billings level of $584.2 million.

http://www.semi.org/en/Press/ctr_034510

Your mileage will definitely vary (consider this a disclaimer of sorts).

The comments in the same report about Cisco’s recent earnings release are very interesting.   I think one of the areas of concern with Cisco’s report came to light when a few folks, folks that actually read quarterly filings, made note of the fact that they were providing some very cheap financing to some of their customers.   We’ll see how that works for them……  Suffice to say, history shows it hasn’t done well for others.

I don’t have a problem with the idea that we are on the brink, or in the midst, of a major electronics upgrade cycle.  Whether this cycle is driven by PCs, which I will broadly place in any form – game boxes, e-books, smartphones, etc, etc –  it is clear to me that we are taxing the telecosm and the attendant systems to the nth degree.   Basic things, like the delivery of electric power, are under duress.

Fact is, we have been under-investing for too long.

With the real “Infrastructure” situation I’ve been experiencing that degradation and lack of maintenance first hand.   The utility services here in the Dallas Metroplex, which I now choose to call, Baghdad, Texas, are absolutely horrible.    Sure, like everyone else we had major storms last week and one can almost justify three days with no power but this is not just a one-off occurrence.    Outages almost every other week are taking place!   It’s unreal.

Why is this happening?  Check these comments out from a few weeks ago:

http://www.bloomberg.com/apps/news?pid=20601072&sid=aDEseYkg2RN8

Now, I knew there was a problem way back when I was living here full-time but I get the sense that it would be wise to go back and evaluate the situation one more time.   I am sure I have not given enough consideration to the politics and the cut-backs in this arena.   In the past, the things that have kept me on pins and needles is the deleterious effects to the stability of the grid that is sure to come about by radical changes and additions to its base Infrastructure as a result of “accelerated” spending on some parts of its “smart-grid” areas, compounded by the renewables that are coming online which will stress existing transmission lines in new and previously untested ways.   Add to this, the fact that transmission lines are not expanding in capacity half as fast, much less being built to where they are actually needed to meet expanded geographies and the requirements for the new loads (all that good stuff we love) due to NIMBY (not-in-my-back-yard) issues, and it becomes very, very clear we facing some major infrastructure challenges.

At the very same moment one read about campaigns that make you feel as though things are improving.   For example, here’s a PR about making the communications world more energy efficient:

http://www.alcatel-lucent.com/wps/portal/!ut/p/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd4×3tXDUL8h2VAQAURh_Yw!!?LMSG_CABINET=Docs_and_Resource_Ctr&LMSG_CONTENT_FILE=News_Releases_2010/News_Article_001908.xml

Alas, almost every piece of marketecture that I’ve seen coming from a major box vendor looking to save the Earth from itself has included some new box or an application, e.g., power over Ethernet, that burns additional energy while monitoring and controlling the power being used by other useless boxes designed to run on an architecture borne of some foregone, god-forsaken, copper-ridden era.  Translation, these solutions are the epitomization of setting the fox loose in the hen house.  Maybe AlaLu’s solutions are different, we don’t know yet.  If they are, however, they’ll be the first major vendor to have fooled me on this score.

<big sigh>

When it gets right down to brass tacks I hope Gus and his bullish views are right.   One might as well enjoy today’s upward bias in business and hope for the best longer term.   It certainly beats a path in the other direction.

If you have an interest in reading the full report, drop me a note and I will mail it to your attention.

“I’m werkin’ on it!”

Color me, jaded. Yeah, I know. I’ve earned a charter membership to that club.

I’ve been hosting a pretty good discussion about this session on the subscriber mailing list and I am hoping to land a copy of the presentation(s). Assuming my contact loads my in-basket, I will spend a bit of time giving the slide decks the hairy eyeball to see if any stunning insights were unveiled. Even if I don’t land them there’s plenty of notables in the article. Have a go!

As for my thoughts, I’m still trying to conjure up the urge to grasp the nettle. A fleeting thought was to publish a critique and litter it with a series of “turning point” titles that have paced the most recent semiconductor cycle. I have yet to decide about doing such a thing but I do plan to ask others for some insight – primarily because there are, no doubt, folks in the trenches that can dissect this and provide some solicitious, cogent and timely observations.

One thing that might be cool is to create an analog to Gartner’s (Dataquest) ground-breaking mid-1990s, recently updated in ‘05, Hype Cycle Chart:

http://na1.www.gartner.com/resources/130100/130115/gartners_hyp_f2.gif

While I was pondering all this a good friend wrote in and suggested that now is just about the perfect time for titles like these to appear on the scene: “The Light at the end of Tunnel (Sunlight or oncoming Train?)”, and one that is certainly not to be out done “It’s Darkest just before Dawn”. We could add a piece from Gus Richard, who currently hangs his hat at Piper Jaffray. He released the unforgettable “Acapulco Cliff Diving” which, to some extent, would seem to book end neatly with Gartner’s amorphous, benignly non-committal title, “Strategies for Recovery”.

It’s hard to say where it would fit but my Associate also suggested an all time favorite that came from an October ‘04 issue of Strategy Alert titled, “Technology, The Maggot Race Begins”. He’s right on one count, only a British national could show such mastery of the English language.

Without going into a lot of depth I will say that parts of the “back to basics to stay in business”, particularly the part that argues against the use of debt, flash mightily. When you get right down to brass tacks, no debt means there will be no new fabs. Unless, of course, you are Intel, Samsung or TSMC.

Yeah, I could make note of a few other things about this and some stuff (Brooks Instruments purchasing parts of Celerity for one) that are taking place on the business front but……

…..for some reason my head is all messed up. Trust me, there will be another time.

A very quick side note… I sent a message out earlier on this and received a call from a big OEM who, if I recall correctly, stated that Gartner is forecasting a 0.4% CAGR for the semi-industry over the next five years. Ouch!

http://polls.linkedin.com/poll-results/37032/nmhbk

I’ve heard from several people that booth count is going to be way, way down and that the semiconductor section is now going to be in the South Hall of the Moscone Center and InterSolar will be held in the North. Talk about shrinkage! Whew!

For what it’s worth, my LinkedIn profile is here: http://www.linkedin.com/in/infras

During our discussion of the upgrades one grizzled industry veteran shared the following:

….then the equipment guys will see enough orders to warrant an uptick in their stock.

The history of what it takes to move stocks and what it takes to move the semiconductor cycle have increasingly become different things. I’m not going to question whether or not the stocks will lead the cycle – they will – but most likely after numerous false starts. If you are driven to invest based on fundamentals that is not good enough. All one needs to do to see that as the case is to note the “buy them for the turn” table pounding that has been going on for the last two years.

The question then becomes: “By how much should the stocks lead the cycle? 6 months, 12 months, 24 months?”

If you are trading the beta, at least the bit of beta that remains in the stocks, it doesn’t matter. If you are taking a little longer term approach and actually investing for a cycle play then it does.

Here are a few more questions and thoughts we’ve been discussing on the mailing list:

Is the worst over?

Coming from near zero, I’d say yes. This cycle is very different for a host of fundamental reasons and though we are getting a bounce off the bottom it doesn’t tell us anything about the shape of the recovery.

Will the industry even get close to peak margins again? That’s highly doubtful. Looking up and down the chain suggests that a weakened semiconductor business will continue to weaken the capital equipment business.

Which brings you to another set of questions that will hover over the industry as this cycle (if you want to call it that) develops: Are there more consolidations ahead? For what reasons, and what companies?

Yeah, this could go on all day. The sense here is that even more realities will surface in the next few quarters. That should make for a very interesting summer in semiconductor land.

None other than Rick Whittington! Mr. W and his $17-regression-line-based-EPS-extrapolation for Micron back in ‘97 will stand in infamy as one of the all-time classic analyst outputs.

How soon we forget.

Today’s piece, published in the Intelligent Investing (ahem) section of Forbes, ranks right up there! Containing only a couple of numbers Mr. W. makes a bold proclamation about the prospects for semiconductor stocks: “They’ve now bounced back about 55%, but history suggests another doubling.”

Doesn’t that sound great? I’m so excited. Should I go ALL IN?

The other number is just about as useful as the first: “This past year, U.S. companies picked up 5% of market share to 53% of global chip output.”

Sounds peachy! Although, on second thought…. Some input as to why this happened and who the beneficiaries are might be helpful….

Arming the Forbes reader with these two iron-clad data points, a few clips about the history of semiconductor industry cycles, a less than heartfelt and data-less dart toss toward some minutely positive economic data, some verbal diarrhea about the plethora of uses for semiconductors, the fearless Mr. W concludes his missive by suggesting the purchase of three stocks.

Three stocks that he admits owning.

Allow me to say that I don’t have an issue with the fact that semiconductor devices will continue to proliferate. All those things mentioned, the internet, broadband, wireless, media, security and a host of applications we haven’t even thought of will drive growth in semiconductor content. Those that are remotely close to the industry, followers, investors and insiders, know all about this. It’s going to happen. Clearly Mr. W. is not preaching to this group. This is the kind of stuff you hear in taxis, bars and coffee shops.

What I would like to see in conjunction with the previously mentioned fact is some solid, non-mo-mo, financial justification for owning the stocks. How about some metrics to assess present and future valuations? If one can not provide a suitable set of financial metrics one should, at the very least, qualify the recommendation by admitting that the vast majority of companies in the semiconductor space are beta plays. Invest in them using techniques you use to play video games. Nothing more, nothing less.

In a nutshell, when I read a piece like this it really jerks my bobber. And no, I did not wake up on the wrong side of the bed!

If these deeply profound and pithy observations appeal to your investment senses then by all means click the following link and read the rest of the story:

http://www.forbes.com/2009/05/05/semiconductors-technology-stocks-intelligent-investing-chipmakers.html?partner=yahootix

As for me, I’m personally going to dig a little deeper and do some research on the earnings prospects for the business – right after I give myself a swirly.

Oh! And if you are serious about investing in the sector and interested in getting any of my research feel free to subscribe to my mailing list. Details are here: http://www.infras.com

Carl