Samsung Inventory Build Poses Risk To Handset Chip Stocks, Analyst Says

Fourth-quarter financial results at the semiconductor handset companies could disappointment as Samsung sharply slows down mobile phone production, according to Thomas Weisel Partners analyst Tore Svanberg.

Svanberg notes that Samsung - the world’s #2 handset producer, behind Nokia (NOK) - typically slows component orders in the final weeks of each calendar year to reduce inventory. He says that while each year is different, on average build rates drop 10%-15% sequentially in the December quarter. This year, with the global economy still struggling and consumer spending health uncertain, he thinks Samsung could have excess component inventory - and therefore may substantially reduce Q4 component purchases. He thinks the company’s build rate in the quarter could be down 20%-25% from Q3 levels.

Svanberg adds that any weakening of consumer sentiment and spending at a time when handset makers are rolling out many new model could translate to excess inventory after the holidays. Ergo, he thinks the analog chip companies that supply the handset makers could be headed for lower-than-expected Q4 results.

In particular, he singles out three stocks as particularly vulnerable: Advanced Analogic (AATI), with 38% of revenue from Samsung, and 70% of overall revenue from handsets; RF Micro Devices (RFMD), with 75% handset exposure, including 10%-plus to Samsung, and Skyworks (SWKS), with 75%-80% handset exposure, and 10%-15% from Samsung.

Svanberg says other chipmakers with more modest exposure to this issue include Intersil (ISIL), National Semicondutor (NSM), Micrel (MCRL), Maxim Integrated Products (MXIM) and Silicon Labs (SLAB).

In today’s trading:

• AATI is down 15 cents, or 3.8%, to $3.82.


• RFMD is down 49 cents, or 9%, to $4.94.


• SWKS is down 63 cents, or 4.8%, to $12.61.


• ISIL is down 97 cents, or 6.3%, to $14.34.


• NSM is down 82 cents, or 5.8%, to $13.45.


• MCRL is down 33 cents, or 4.1%, to $7.82.


• MXIM is down 63 cents, or 3.5%, to $17.51.


• SLAB is down $1.31, or 2.8%, to $45.05,