I wrote a piece on this matter couple of months ago and I reaffirm my belief on this industry with a positive bias for 2010. Tech counters are up at least 50% since then with Japan leading the way.
Demands are improving, companies are skeptical so inventory to remain low a capex is held down. Valuation kept in the middle of the zone and these dynamics are unlikely to change in 2010.
Tech demand is been driven by PC. Data from the US shows that demand for PC could have an upside of 15%, and this comes from significantly revised up 2009 base. Penetration rate in China, India and Russia remains strong. Consumer PCs grew 30%yoy in the bad year shows the driver. Corporate, which commonly are replacing a quarter of PC, have slowed to one-sixth, is set to get back to 1 out of 4. Replacement market will be one of the principal drivers for handsets as well. Window 7 is less resource hungry and 70% of the consumer machines with Windows 7 has 64-bit, 4 GB is the least amount, essentially more bits can be used.
World is expecting launching of new products of e-paper, batteries, LEDs on TV and touch.
Inventories are at 10-year low. I don’t expect to see inventory rising up that much in the near term due to some supply constraints. While, I am seeing a rise in capex numbers, these are essentially to meet current demand. It is likely going to be an issue at some point, perhaps two quarters away from now. The supply curve cannot be shifted due to semi-equipment bottlenecks. Contacts of mine suggest that we are likely to see 25-30% upside for revenue growth and margins.
Backend pricing is firm with shorter lead time on equipment. It remains under-invested and that should keep pricing firm. It is not easy to change the supply curve with better mix for high-end wafers.
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