Jefferies & Co.’s semiconductor analyst Mark Lipacis this morning writes that Cisco Systems’s (CSCO) better-than-expected fiscal Q1 report and Q2 outlook last night suggests semiconductor revenue growth may pick up next year, based on inventory depletion.
Cisco’s outlook suggests the current quarter is proceeding in a “roughly seasonal” manner, writes Lipacis, which is consistent with what other electronics equipment OEMs are indicating.
But semiconductor companies are forecasting below average: “Semis in aggregate (ex-Intel (INTC)) guided for 4Q11 revenues to decline 3% QoQ, 600 bps below the 10-yr avg.”
Erog, “After four quarters of slower growth relative to their OEM customers, we think supply chain inventories are being depleted, setting semis up to benefit from a restocking cycle in 1H12.”
Lipacis has a few favorites in chip names:
expect companies with strong product cycles to deliver the most upside. We recommend buying Broadcom (BRCM), Marvell Technology Group (MRVL), and Avago Technologies (AVGO) for their premium exposure to Smartphone growth, and Altera (ALTR), Inphi (IPHI), and PMC-Sierra (PMCS) for product cycles in wireless and wireline communications infrastructure, including Cloud/ Storage. We also like ON Semiconductor (ONNN), and Texas Instruments (TXN) due to their gross margin expansion potential and higher earnings power.
This morning, all the names are higher:
- Avago is up by 40 cents, or 1%, at $33.63;
- Broadcom is higher by 27 cents, or 0.8%, at$34.32;
- Marvell is up a penny at $14.12;
- Altera is up 38 cents, or 1.05%, at $36.67;
- Inphi is up 20 cents, or 1.8%, at $11.10;
- PMC-Sierra is up 4 cents, or 0.7%, at $6.10;
- ON is up 8 cents, or 1%, at $7.44;
- and TI is up 13 cents, or 0.4%, at $30.44.
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