Venture does not expect any seasonal uptick in sales this year-end and we would be verysurprised if it said it did, given that 4Q08 is shaping up to be the worse quarter on record for thechip industry. According to industry researcher Gartner, semiconductor sales are expected toslump 25% qoq in 4Q08. Sales are expected to fall 4.4% in the full year and a further 16% in2009.

In 3Q08, Venture’s inventory surged 13% yoy and 10% qoq to $680m or 64 days, the highestquarter since 2005. We would be very concerned if inventory continued to climb in 4Q08 as itcould signal worse quarters ahead. Recently, iSuppli signalled that the excess global stock ofchips is expected to balloon almost 3x qoq in 4Q08 as production schedules have been rapidlyslashed during the quarter.

Despite still holding almost $91m of CDO exposure on its books (after providing 46% of hostvalue of $167.8m), we expect CDO2 to become less and less of a concern as its Dec 2009maturity nears. This being the year-end, we expect Venture to completely write down theremaining exposure in order to start 2009 on a clean slate. We have factored this into our revisedFY08 forecast of S$123m (-41% from previous forecast).

In addition, we have lowered our revenue and margin expectations for 2009 to reflect a weakerdemand outlook as consumers downgrade from premium to value products and higher pricingpressure as customers seek to cost-down. We now project earnings of $190.6m (-22% fromprevious forecast).

Although there is no doubt Venture is a financially strong, capably managed company trading atdepressed valuations (0.7x book, 6-7x FY09F EPS) and a high dividend yield (>10%), we wouldstay neutral to the stock. Clearly where technology is concerned, even value investing can beprecarious. While the de-rating of tech stocks is already several years old, the current economiccrisis could prolong it even further.