A recent report published by the Semiconductor Industry Association (SIA) reveals that chip sales took a tumble following the recent floods in Thailand. Global chip sales were also affected by the Eurozone crisis in November 2011.
As per the data by SIA, global chip sales during the month of November dipped 2.4% from last month to $25.1 billion. However, on a year-to-date basis, global chip sales inched up 0.8% from the year-ago level.
The leading global chip manufacturer Intel Corporation (INTC”>INTC) recently slashed its sales outlook by $1.0 billion as it believes that the recent floods in Thailand would impact the demand for PCs, as well as microprocessors. The natural calamity in Thailand has also disrupted the supply-chain process of both the PC and Server markets.
All the major geographic regions witnessed decline in sales. The Asia-Pacific region was worst hit, with sales declining 2.9% from the previous quarter. Sales in America fell 1.8%, while Europe sales also plunged 1.8%. Japan fared slightly better and witnessed a sequential sales decline of 1.7%.
We believe that Seagate Technologies plc‘s (STX”>STX) Thai facilities were not affected by the flooding, but it may face difficulties in manufacturing hard drives owing to supply-chain constraints.
However, the floods proved to be beneficial for Seagate as it offered significant opportunities for the company to gain market share as production at Western Digital (WDC”>WDC) came to a standstill. Seagate asserted that its facilities in Thailand are fully operational and with the Samsung acquisition, management believes that the company’s capacity will be approximately 70 million units in the March quarter of 2012.
This apart, Enterprise system makers such as EMC Corp. (EMC), NetApp Inc. (NTAP”>NTAP), Teradata, and International Business Machines Corp. (IBM) could face disruptions in the storage and server supply chain. But as these companies are enterprise-HDD users, there is a chance that they may buy devices from Seagate and Hitachi (as they specialize in performance-enterprise HDDs) than from Western Digital.
Moreover as per the SIA, November sales were additionally affected by the continuing European financial crisis, which is having a broad impact on other economies and global demand.
Seagate, Western Digital and Dell have a Zacks #2 Rank, implying a short-term Buy rating. NetApp, EMC and IBM have a Zacks #3 Rank, implying a short-term Hold recommendation.
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