UBS Semiconductor Equipment Industry Update

UBS Semiconductor Equipment Industry Update by Stephen Chin
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Orders nearing a normal downcycle trough Total 3Q11 Taiwan semicap orders down -61% q/q but likely bottoming - Our analysis indicates Taiwanese semi companies placed only $462M of total semicap orders in 3Q11 versus $1.2B and $2.0B in 2Q11 and 1Q11. Our analysis shows prior semicap order troughs in Taiwan were in 4Q08 at $292M and 2Q05 at $671M which suggests current orders are likely troughing. Our most preferred semicap stock is Lam (Nasdaq: LRCX) given higher memory/foundry s.ales and lower logic sales."

"Checks found TSMC placed 5 semicap orders for $142M last week - Our checks found TSMC’s semicap orders last week included a $19M with Applied Materials (Nasdaq: AMAT) and our analysis shows TSMC’s total 3Q11 semicap orders were $323M, down -64% q/q and compares to quarterly trough levels in prior downcycles of $158M in 4Q08 and $150M in 2Q05. We note UMC’s 3Q11 semicap orders were only $103M in 3Q11, down -30% q/q. Aug-11 monthly semi units -3% y/y imply Teradyne (NYSE: TER) orders bottoming Our analysis shows year over year semiconductor units were down –3%. Historically, we have found that negative y/y IC unit growth has been a leading indicator for higher orders for Teradyne’s test equipment which we believe likely inflects higher in 4Q11 or 1Q12....Expect 3Q11 wafer starts to decline q/q, lower ATMI Inc. (Nasdaq: ATMI) & MEMC Electronic (NYSE: WFR) estimates."

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