CIOL: Please provide an update on the status of the global fabless semicon industry.

FSA: (Morgan Stanley) Industry Observation: The end of the supply-side cyclical correction in the semiconductor industry and the expectation for more favorable seasonality appears to be getting discounted by semiconductor investors. However, this is occurring in an environment when end market demand appears mixed, and the risk of a muted or sub-seasonal "recovery" is high.

(Merrill Lynch): Unit shipments came in stronger than expected, but ASP was weaker. For the quarter, Q2 billings represented a QoQ decline of 2%, which is worse than the seasonal average growth of 3%. Based on comments from various semiconductor companies, we believe Q2 marks the trough of this cycle. We continue to believe we'll see a strong rebound in Q3. Our full year estimate for 2007 of 5% growth in billings is unchanged.

(Jeffries & Co) We continue to believe that the Analog and Wireless sectors will outperform the overall semiconductor market in 2H2007.
The Analog sector continues to recovery with inventories lean and forward business looking strong and in-line with end demand now. PC demand is slightly better than expected with Notebooks particularly strong ahead of Intel's new Santa Rosa launch. Wireless chip supplier results reflect the weakness in Motorola but also indicate a seasonally strong 2H 2007 ahead.

(iSuppli – Aug 1)
Mobile handset growth remains vibrant in 2007 and is expected to end the year with a 10% unit increase. However, revenue growth will be only 5% as Average Selling Prices (ASPs) continue to decline.

Semiconductor revenue for wireless communications is said to have grown by grew by 14.2% in 2006, driven by the 20.7% unit growth of handsets. The 2007 semiconductor revenue growth for wireless communications will be 7.7% as the handset unit increase slows to 10%, one of the many factors behind the present slowing in the semiconductor market.

Demand for new consumer-electronics products over the past four years is also cooling; revenue growth for the consumer-electronics market dropped by about one-third in 2006, to 9%. And it is expected that growth will decline by more than one third in 2007, to a smaller, but respectable 5.2% revenue growth as the market slows and ASPs continue to plummet.

The wired communications segment is expected to post 3.1 percent growth in 2007 and automotive electronics are expected to post a 3.9 percent increase in 2007, a weaker trend than seen in recent years.

The industrial market rebounded to 8 percent revenue growth in 2006 as the military/aerospace, medical and semiconductor manufacturing equipment markets grew strongly. But industrial market growth has flattened in 2007, especially in the semiconductor manufacturing equipment sector.

Cavium - IPO

Cavium Exceeds Expectations Out of the Gate. Cavium reported Q2 revenue of $12.67M, exceeding our estimate ($12.35M) as well as that of consensus ($12.15M). Non-GAAP EPS of $0.03 compared favorably to our estimate of breakeven (and consensus at $0.01). Management guided for Q3 revenue to range between $13.7M-$14.0M (representing sequential growth of 8%-11%). We were expecting Q3 revenues (pre-conference call) of $13.8M, while consensus had called for $13.4M. It is important to highlight the fact that Cavium is at a point where revenue should accelerate, fueled by the broadband access and service provider markets. Longer-term incremental growth should come from the storage market. Despite strong growth and solid execution following the company's recent IPO (May’07), we are maintaining our Hold rating. We are looking for a more compelling valuation before considering becoming more constructive on the shares. (July 18, 2007)

Cavium stock price increased 45% since May.