When the Rising Tide Recedes

Semiconductor revenues have been strong in large part due to strong mobile phone sales, driven mainly by China and India. Now it looks like the Chinese market, which is not very transparent and thus difficult to forecast, may be slowing.

In recent days, evidence has begun to accumulate of some slowing in global cell phone sales, especially in China. For instance, the most excellent Asian IT news site DigiTimes reported yesterday that both BenQ and Compal Communications see slow growth in handsets in the current quarter.

And now the Street is getting worried. Several new reports from Citigroup touch on the issue this morning. Daryl Armstrong, who covers wireless telecom equipment, says that while “the Chinese handset market is healthy in general…we are seeing some inventories build up for slow-selling models, especially some low-end products from smaller manufacturers.” He blames this on “the growing number of models available onthe market, shortened product cycles, and increased demand for phones with more advanced features.”

We have been pointing out for some time that semiconductor supply is outpacing demand. Recently capacity has been tight, but as the new supply comes on more price cuts should be expected.

Disclosure: William Trent has a long position in SMH.

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