UBS ups global chip rev growth view for '10

NEW YORK, USA: UBS boosted its 2010 estimate for global semiconductor revenue growth, saying the first quarter appeared to be tracking ahead of seasonal trends with strong PC sales that should continue to support demand for DRAM chips.

UBS raised its semiconductor revenue growth forecast to 18 per cent from 12 per cent for 2010, but cut its estimate for 2011 to 5 per cent from 7 per cent.

"However, we also believe that concerns about a possible second-quarter order 'air-pocket' could keep the sector range-bound in the short term until first-quarter earnings season," the brokerage said.

UBS downgraded the global memory semiconductor sector to "neutral" from "positive," citing a moderate increase in supply risks, and cut its rating on top U.S. memory chipmaker Micron Technology Inc to "neutral" from "buy," while its rival SanDisk Corp was upgraded to "neutral" from "sell."

On Friday, SanDisk, the No. 1 maker of NAND flash memory cards used in devices such as digital cameras, raised its revenue forecast for the first quarter, and said growth in the flash industry as a whole in the next decade will "dwarf" that of the last 10 years, as the mobile Internet becomes ubiquitous.

"We are more positive on NAND flash, where we expect more normalised price declines to bring forward the ramp up of Solid State Drives, which, combined with cellphones, could lead to accelerating demand into 2011," UBS said.

Solid state drives (SSDs), which store data on NAND flash memory chips, are considered cooler, more energy efficient and more reliable than hard drives, but are also a lot more expensive.

For now, SSDs are used where access time is critical enough to justify the high cost, such as in financial transactions, and are expected to be adopted rapidly by corporations in coming years.

"With a less supportive environment for DRAM prices in the back half of 2010, we believe investors should focus on share gainer / technology leader Samsung," UBS said, as it reaffirmed its expectation of DRAM oversupply in 2011.

Dynamic random access memory (DRAM) chips are used in personal computers, servers, printers, personal digital assistants, mobile phones, game consoles and digital music players. The brokerage named major chipmakers Intel Corp, Marvell Technology Group Ltd, Analog Devices Inc, Samsung Electronics Co Ltd, ARM Holdings, ASML and Infineon as its top global stock picks.

"Looking beyond the second quarter, we expect a combination of back to school seasonality and enterprise spending to drive a solid second half (of 2010) and the implied mix shift should be positive for gross margin," UBS said.