FBR Capital Markets Comments On Tech & Semiconductor Sales

FBR Capital Markets remain constructive on the chip sector for 2011 and think that semiconductor stocks can appreciate higher over the course of the year, given robust end demand for smartphones, tablets, infrastructure equipment, and industrial/automotive applications; higher chip content per device in handsets, automobiles, and others; still-reasonable channel inventories; still-limited capacity growth, and reasonably high earnings power. Recent reports from the media and credit card merchants suggest that overall holiday electronic sales grew by 1%–2% YOY, somewhat "ho hum" levels that we do not consider to be either robust or sluggish. We still hear of strength for smartphones, e-book readers, Apple's

iPads, the MS Kinect, and a few other devices. On the other hand, PC sales continue to be somewhat sluggish. Some revenue and EPS estimate risks remain as chip firms still ship above end-consumption levels. While FBR remains constructive on chip demand trends and overall inventories as this chip super-cycle transitions into a soft landing, it does think that many chip firms are still shipping above end-consumption rates, given that downstream chip replenishment continues. Also, gross margins could set a peak in 2010, given very high fab utilization rates and head-count levels recovering more slowly than revenues.