Semiconductor industry fundamentals remain robust, according to a joint survey conducted by Smith Barney and the Reed Research Group.

The survey of semiconductor purchasing managers showed that expectations for Q1 sales have ticked up slightly since last month, and expectations for Q2 sales growth ticked up more meaningfully. Order growth expectations for Q1 and Q2 also ticked up in a similar fashion.

A similar survey conducted last month pointed toward an inflection point with respect to the building of buffer inventory. This month¡¯s survey results validate that this effect is broadening. More and more semiconductor purchasing managers are increasing their inventory chip levels.

A greater portion of survey respondents -- 36 percent -- reported increasing inventory levels in March. That¡¯s up from 28 percent in February and 19 percent in January.

Lead times, which have been lengthening materially for a couple of quarters, appear to still be lengthening overall but the pace of lead-time increases is waning. Lead-time extensions are occurring at a slower pace than they have been previously. At a product specific level, lead times are expected to increase most for discretes.

Momentum for lengthening lead times has diminished for high-performance analog since last month, though they are still lengthening.

For the first time, a few meaningful discrepancies appeared between this survey and our usual anecdotal field checks. For example, prices for discretes downticked in the survey, and lead-time momentum for NOR flash slowed.

Expectations for pricing remain robust, with 41 percent of purchasing managers surveyed saying same part prices are falling more slowly than usual, or not at all. This is a slight downtick from the 47 percent of respondents who believed so in February.

According to the survey, pricing for discretes seemed to weaken slightly since last month, in stark contrast to data points from other industry sources. These industry sources indicate that pricing for discretes should actually be quite healthy through the first half of this year.

In addition, the continuation of inventory stockpiling means that semiconductor manufacturers will now be seeing a couple of quarters of strong book-to-bill ratios in the 1.1x-1.3x range, and a likely acceleration of order patterns from current levels. Typically, semiconductor stocks tend to trade in line with semiconductor order patterns, which could bode well for investors over the next three or four months. So while semiconductor stocks have not acted well over the past couple months, industry conditions may be ripe for semiconductor stocks to work again before we enter the second half of 2004.

By: DocMemory
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