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Upcoming chip results could prompt further stock retreats

27 января 2009

Semiconductor companies' increasingly dreary earnings reports and uncertainty ahead suggest no area of chips is immune to the economic downturn, and any hope of rebound is premature.

So far, wrenching declines in quarterly income and revenue have mostly come from memory makers and companies highly exposed to PCs and other consumer electronics. But low visibility at chip giants like Intel Corp. and shifts of fortune at Samsung Electronics Co. among others likely mean companies soon to report, like Texas Instruments Inc. and Broadcom Corp., are also set to disappoint.

"One thing we can learn from Intel is that there is weakness across all geographies," Edward Jones analyst Bill Kreher said."If Intel is seeing limited visibility, the entire tech industry is seeing limited visibility."

Nonetheless, shares of chipmakers rose across the board Friday, after a week of grim reports and falling stock prices.
The Philadelphia Semiconductor Index, or SOX, jumped 5.2% to 210.46 after falling 6.7% since last Friday. Among notable movers, Intel rose 4.4%, equipment maker Applied Materials Inc. gained 7.4% and Marvell Technology Group Ltd. was up 9.8% at $6.81.

Last quarter, limited visibility developed into outlook revisions and then dismal earnings reports.
Intel slashed its guidance twice in the fourth-quarter before reporting a 23% drop in revenue. Advanced Micro Devices Inc. slashed its revenue forecast Dec. 4, followed by revisions less than a week later at TI, Broadcom, Altera Corp. and others.

And so far, the chip companies reporting earnings have added little for investors to find optimistic.

Intel hit its reduced outlook numbers, but avoided formal guidance and instead provided a $7 billion internal estimate for first-quarter revenue.
AMD said only that first-quarter revenue would decline from the fourth quarter. Samsung, one of the strongest companies in the tech sector, posted its first loss since it began reporting quarterly results in 2000. And other relatively strong chip companies, Xilinx Inc. and Linear Technology Corp., noted weakness ahead.

To be sure, companies making chips used in computers and servers, such as Intel and AMD, feel more directly the effect of the rising chip inventories that are plaguing the industry.
Those chips become outdated faster than the analog chips used in cars or heavy industry, so inventory swings or changes in consumer habits hit those companies sooner.

"The PC industry has a better handle on how things are going, but probably overreacts when things slow down," said BMO Capital chip analyst Brian Piccioni.

The market reacted swiftly to re-evaluate the value of these companies share prices, though the same can't necessarily be said of the next major chip makers to report, TI and Broadcom.

After Intel and AMD cut their guidance, their shares fell ahead of earnings.
From Jan. 7 until it reported last week, Intel was down 14%. AMD dropped 5.2% after lowering its outlook until reporting Thursday.

TI and Broadcom, however, traded higher following their downward estimate revisions in December. Broadcom is up 12%; TI has risen, though a scant 0.5%.

While TI fell around 14% from its third-quarter report until it lowered fourth-quarter guidance - suggesting investors may have already anticipated at least some earnings declines - Broadcom rose 3.8% from the third-quarter report in October until its guidance cut.

The gains continued Friday. Broadcom shares were recently up 5.3% at $17.46. Texas Instruments gained 5.3% to $15.12.

Concerns, though, are rising that Broadcom, which has seen smaller stock declines than others due in part to its exposure to fast growing markets, could let investors down.

"By no stretch of the imagination is Broadcom immune to what is happening in the broader economy," Caris & Co. analyst Betsy Van Hees said, adding that the company's first-quarter outlook when it reports next week will be key.

"If they cite weakness across multiple end markets, it will signal to investors that it's not as safe a haven as they thought," she said.

For Texas Instruments, Edward Jones' Kreher said the better guides to fourth-quarter performance and prospects for the current year are the recent results from cell phone makers Nokia Corp. and Motorola Inc.

TI still garners 40% of its revenue from handset chips, Kreher said, and as a major customer, Nokia's larger-than-expected fourth-quarter drops in profit and sales don't bode well for the chip maker.

Additionally, TI has looked to its analog business to boost margins, and analog chips are likely taking a hit as well, Kreher said.

"It may not be to the degree of what's happening in the handset industry, but we are definitely seeing a slowdown," he said.

Источник: Total Telecom

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