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    VLSIinsiders on the Semiconductor Market — September 30, 2020

      Oct 5, 2020
    • The Trump-Biden debate on uncertainty
    • How Micron’s earnings call changed the memory outlook
    • The 4 week decline of the DRAM Market
    • Semiconductors inventory: Is it too high?
    • How the Disney layoffs darken the economic outlook
    • And, as always, what we’re hearing about order visibility

    About VLSIinsiders: Every week our analysts get together to discuss current events and key issues of concern, while sharing what they’ve heard over the past week from the semiconductor industry insiders they talked to. The content is always good, so VLSIinsiders was started to share a condensed version with you.

    Other VLSIinsiders

    Transcript

    VLSIinsiders’ Cloudside Chat — September 30, 2020

    DAN HUTCHESON: Welcome to this edition of the VLSIinsiders. We've got a lot going on this last week. I got Risto Puhakka and Andrea Lati with me to talk about what's been going on. We've had a pretty lively discussion so far this morning. So, in terms of what went on with Micron last night, with Disney and its layoffs. So welcome to the program, guys.

    RISTO PUHAKKA: Thank you, Dan. And I think you forgot the debate also last night out of the mix.

    ANDREA LATI: Less talk, right?

    DAN HUTCHESON: Oh, yeah, the debate. Okay. So, first question on the debate, did it make things more certain or less certain about where we're going?

    RISTO PUHAKKA: I think the consensus is less certain.

    DAN HUTCHESON: Yeah, I would have to say that's definitely the case, but Micron really was the, was strange, right? They gave poor guidance, but then they up their Capex? You know, what do you think? What's up with that, Andrea?

    ANDREA LATI: Well, it wasn't very, very surprising to be honest because we actually knew that things would turn down a little bit in the fourth quarter, right? So, in my opinion, actually was in line with our forecast, even though it did look pretty bad, especially the fourth quarter guidance, right? Because they did about 6 billion last quarter, and which was actually a little bit lower than what we had estimated, we had, let's say, estimated about 6.2. And then in the fourth quarter, they their mid-range was about $5.3 billion dollars and what we had previously forecasted in our, you know, company analysis was about $6.1 billion dollars in terms of revenues. So it was, you know, almost $800 million lower than our internal estimates.

    DAN HUTCHESON: As of last week, I just, today's semiconductor analytics is going out and DRAM sales have been off for four weeks in a row now.

    ANDREA LATI: Correct.

    DAN HUTCHESON: The weather peak back in late August. So…

    ANDREA LATI: Yeah, and again, we had the, all the indications were to slow down were there. Because even if you look at some of the monthly data that we get from other manufacturers, even showing a clear slowdown in the last two months. So, for me, it was just a matter of how much lower Micron was going to guide, and it was a disappointing guidance. The other piece that was interesting was, you know, inventories which, you know, they're still at a pretty high level, they're adding at about $5.6 billion dollars’ worth of inventory. So, inventory to billings ratio was about 93% last quarter, which is a little bit better in terms of the ratio from the previous one. But I bet you, this coming quarter, that ratio is going to be well over a hundred because I don't see Micron, you know, moving that much inventory in a matter of a quarter given how, you know, weak their sales are...for the current…

    RISTO PUHAKKA: Hey, and Andrea, this lends the question going into inventories a little bit. We looked at, we tracked the inventories in the TCI graphics file, and then with the ratio is 1.5 or so, give or take a little bit, and Micron is running clearly higher inventories. Actually, the ratio is like three.

    ANDREA LATI: Correct.

    RISTO PUHAKKA: So that's basically double what we are on the industry average showing, so can you can you comment about what's where the differences are? What's happening there?

    ANDREA LATI: Well, it's really the rest of the market, it is actually has a much better handle on the overall inventory environment. If you look at Logic, pretty reasonable. Even Analog, which has been hit very hard during this last downturn because of the auto industrial. The inventory levels there have been more manageable than the memory. Memory never really got their inventories to what we deem as reasonable level since the last downturn, since 2019. The inventories there had been hovering around 90% to over 100% of their sales, so it never really got their inventories to the level where it should have been more normal. And again, now it's becoming an issue again because they're seeing some soft demand, which again, will keep this ratio at a pretty elevated level, probably for another quarter.

    DAN HUTCHESON: What about it, Huawei? I mean, is that a black hole? Do we really have any handle on what's going on there?

    ANDREA LATI: Yeah, Huawei actually, it's a big issue for two reasons. In for Micron’s case, it's a big customer, I think it count over 50% of their sales. So losing that, you know, is one of the reasons why their revenues also are being impacted in the fourth quarter. And then another reason why Huawei has become such a wild card is because they have been building up a lot of inventory to deal with all the sanctions that are coming at them. So, it has made this sort of demand, you know, very choppy, right? I mean we saw pricing, especially in the stock market in the last four weeks increased quite a bit. And I do think it's because of Huawei, that they were just buying more parts to have, to get by, you know, through this, let's say next six months. So that has made this whole inventory situation will be trickier because, you know, there is a lot of accumulation in China…

    DAN HUTCHESON: That’s true.

    ANDREA LATI: …that we don't know, at what point they're going to start, you know, working them down, essentially.

    DAN HUTCHESON: Okay. Risto, you've been talking to a lot of people. Are you seeing any clarity of horizon out there?

    RISTO PUHAKKA: Oh, it's basically if we talk to companies, they're preparing three scenarios. They say, “Hey, there is a down scenario, there is surplus scenario, there is a there's a positive scenario.” And then it's like, okay, what would be driving which directions and it's a lot of uncertainty there. And so that's kind of makes it pretty challenging for everybody right now.

    DAN HUTCHESON: Yeah.

    ANDREA LATI: Like, Risto. It seems like our scenarios back in March-April timeframe when you know, the whole…

    RISTO PUHAKKA: Yeah…yeah…yeah.

    ANDREA LATI: The whole…back of that.

    RISTO PUHAKKA: Yeah.

    DAN HUTCHESON: Well, Disney laying off, right? I mean, one of the questions you were asking Risto was that, you know, what, Disney laying off, you know, the uncertainty of the, you know. After last night's debates, you were asking about, you know, what's going to happen with the economy, right?

    RISTO PUHAKKA: And…

    DAN HUTCHESON: And who's leading, right? That was my question. Is it if, it’s not Trump. He delegated it to the governors and the governors who did all the delegating it to the counties. It's the business's leadership because they're the ones that have to face the lawsuits if people get COVID on their watch.

    RISTO PUHAKKA: That's absolutely true from that perspective. And yes, and you know, Disney was just a great example. 28,000 people laid off, a fifth of its labour force, workforce globally. And it's just it for me, it's a sign of giving up, this is not going to resolve itself soon. And I just kind of felt that was a great example. We know there are lines in some other industries as well. But this Disney was kind of, they were holding up and they had a furlough out to people, but this was kind of say, throw my hands up and say, we can't be, can’t resolve this, we need to essentially shut down for time being.

    DAN HUTCHESON: Yeah, yeah. Okay. Um, but let's see. So anything else you guys, because we're kind of coming to the end of the time allotment? Anything else do you want to talk, say, or talk about?

    ANDREA LATI: Well. The one positive thing was that if you look at talking back to my Microns, instead of sort of the highlight of the week is that they did up Capex, for this year, for this fiscal year, right? From about eight billion plus that they did last year to about nine. So, I do think that whatever weakness they're seeing, they probably believe that it's short term. Otherwise, if they thought that things are really, really bad, then we would have probably seen a bigger drop in the Capex. Not only we didn't see that we actually saw an increase. So…

    RISTO PUHAKKA: Well, they actually showing their last fiscal year, which sustained with seven and a half billion. Now they're projecting nine…

    ANDREA LATI: Right

    RISTO PUHAKKA: …which is like pretty conflicting.

    ANDREA LATI: That was my point. So, it could be a near term sort of a headwind that you know, what they're seeing, but longer term, I do see that, you know, things should pick up.

    DAN HUTCHESON: Yeah, well, they have a lot of technology upgrades to do too. So, because Risto has been really bullish about Memory Capex this year because of technology upgrades. And these guys are in a race to cut costs by trimming dye size layers.

    RISTO PUHAKKA: That's so critical, having you know, more and more NAND layers, and then tied to geometry on DRAM. So it may be that 9 billion includes one couple of UV tools as well.

    ANDREA LATI: (Laugh) Only that.

    DAN HUTCHESON: Yeah, yeah. So anyway, thanks. Great, guys. Thanks for taking the time today.

    RISTO PUHAKKA: Thank you so much.

    ANDREA LATI: Thank you Dan. Good Bye.