Semiconductor sales softened a bit in November, though the memory market continued to shine, Morgan Stanley said, citing data from the industry’s top trade group.
According to the Semiconductor Industry Association, sales during November rose 7.1% month-over-month, below Morgan Stanley’s estimate of 10.4% growth, but above the 10-year average of 2.5% growth. Three month growth accelerated to 29.8% year-over-year, compared to 27.2%, the investment firm said. One month growth soared 29.5% year-over-year, Morgan Stanley added.
Breaking it down by region, Asia Pacific saw sales soar 71.9%, while China also saw a healthy gain of 28.9%. The Americas and Europe followed, as the regions saw 12.4% and 10.8% growth, respectively. Only Japan saw a decline, as the region saw a 5.6% contraction.
“We expect m/m bumpiness to continue to some degree, though the broader recovery remains intact and numbers come up due to memory pricing,” Morgan Stanley analysts, led by Joseph Moore, wrote in a note to clients. “SIA data broadly underperformed seasonality, with NAND a bright spot relative to other markets.”
Breaking it down by sector, discretes missed estimates, as the sector contracted 4.1% month-over-month, below Morgan Stanley’s estimate of flat growth and below the 0.7% decline over the 10-year average. Units were above the 10-year average, at a decline of 0.5%, compared to a 1.8% decline, while the average selling price fell 4.6%, below the historical average of a 1.2% gain.
The analog portion of the market was also weak in November, as sales fell 4.4%, below the 3% decline Morgan Stanley was expecting and the 10-year historical average of a 3.2% decline. Units were below the 10-year average (down2.4%, compared to a 2% decline), while the average selling price fell 2.1%, below the 10-year average of a 1.2% decline.
Microcontrollers also missed estimates, down 7.3% month-over-month, compared to the analyst estimates of flat and the 0.6% decline over the 10-year historical average. Units fell 9.2%, compared to the 2.9% decline over the 10-year average, while the average selling price fell 2%, below the 10-year average of a 2.8% decline.
Microprocessor units were in-line with estimates, at down 0.3%, compared to the analyst estimate of flat and the 10-year historical average of flat.
Memory was mixed, as NAND outperformed seasonality, while dynamic random access memory moderated from what was seen as an “exceptional” October. NAND was above expectations and the 5-year average, at 47.3% month-over-month growth, compared to the analyst estimate of 40.8% and the 5-year historical average of 21.9% growth. Bits rose 37.8% month-over-month, while the average selling price growth was 6.9%, below the analyst estimate of 13.4% growth.
“While data center SSD markets are meaningfully constrained, we have seen some demand pulled forward in consumer markets anticipating supply tightness to come as supply moves to enterprise,” the analysts explained.
DRAM saw 18.9% month-over-month growth, below the 43.4% analyst estimate and 5-year historical average of 26.3% growth. Bits rose 18.2%, below the 36% analyst estimate, while the 0.6% uptick in the average selling price was below the 5.4% forecast.
“The context here is severe supply constraints forcing a more linear pattern — and prices moved materially higher in December,” the analysts explained.
Despite the slight dip in November sales, Morgan Stanley’s analysts are still bullish on the semiconductor industry and said it favors certain parts and companies, including NXP Semiconductors (NXPI) and Analog Devices (ADI).
“While we remain mindful that short-term data are likely to remain uneven, we have become incrementally more constructive as supporting data points accumulate, favoring companies with a combination of structural positioning and improving cyclical exposure, including NXPI and ADI,” the analysts wrote.
As for the AI trade, “direct beneficiaries” such as Nvidia (NVDA), Broadcom (AVGO), Astera Labs (ALAB), Micron (MU), Sandisk (SNDK), Applied Materials (AMAT) and MKS Inc. (MKSI) should continue to see “robust demand.”
“With respect to AI, we continue to hold the view — unchanged from October — that strength in AI and improvements in the real economy are not mutually exclusive. AI demand is increasingly proliferating into analog, most notably through power applications, though we continue to see the more material step-up tied to 800V architecture deployment which is further out,” the analysts explained. “In the meantime, direct AI beneficiaries (NVDA, AVGO, ALAB, MU, SNDK, and SPE players AMAT and MKS) remain supported by robust demand dynamics that show little sign of slowing — even ‘skyrocketing’ per Nvidia at CES last week — reinforcing our view that exposure across both AI-linked and broad-based semiconductor recovery themes remains warranted.”