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European chip sector set for further growth

19 января 2011

European semiconductor companies are set for continuing growth due to the rising popularity of smartphones and tablet computers, which helped pull the sector out of the slump caused by the economic downturn, while they are also less exposed to the more challenging personal computer market than some U.S. and Asian rivals.

Dutch semiconductor equipment maker ASML Holding NV already said in December that the rising popularity of smartphones and tablets had led to stronger-than-expected demand for its lithography equipment, and it now expects fourth-quarter orders to exceed EUR2 billion. ASML added at the time that demand for DRAM memory cards, which are found in desktop computers, cellphones and games consoles like Sony Corp's Playstation and Microsoft Corp's xBox, was less weak than it had expected. ASML is first of the European chip companies to report, on Wednesday, so could set the tone for the sector.

The trend also underpinned preliminary fourth-quarter results from German chip developer Dialog Semiconductor AG, which Monday beat its 2010 guidance, posting a 36% sales increase compared with a year earlier on strong demand from smartphones and tablet-PCs.

Also, German semiconductor maker Infineon Technologies AG, which is about to close the $1.4 billion sale of its wireless unit to U.S. rival Intel Corp., expects sales to grow by almost 10% in the fiscal year ending Sept. 30, and to post an operating profit margin in the mid-to-high teens.

Chip designer ARM Holdings PLC, meanwhile, has been the darling of the segment. At the recent CES technology fair in Las Vegas, its low-powered chip designs, which dominate the smartphone market, were embraced by Microsoft as another chip technology it will develop for its next version of Windows, ruffling feathers at Microsoft's longtime partners Intel and Advanced Micro Devices Inc. Graphics chip maker Nvidia Corp. also said it plans to license ARM designs as part of its plans to develop new low-power but high-performing microprocessors.

Importantly, ARM's designs, for which it gets licensing revenue -- it gets paid a royalty every time a device ships with one of its designs -- also feature in Apple Inc.'s iPhone and iPad.

ARM's shares jumped another 13% recently after RBC Capital suggested that royalties next year would be much higher than expected. As a result, the company may have to overdeliver to sustain its current sky-high valuation.

ASML Holding N.V.-(Jan. 19)

MARKET EXPECTATIONS: Fourth-quarter results could come in slightly better than expected, Commerzbank believes. However, order intake has likely reached its peak, according to JP Morgan, although spending from customers producing NAND flash memory, and foundries as well as customers investing into the latest Extreme Ultraviolet radiation technology, should be supportive in coming quarters.

MAIN FOCUS: After overcoming the slump in demand as a result of the economic downturn in 2008 and parts of 2009, ASML is cash rich and either acquisitions or share buybacks or a special dividend are a possibility. ASML's outlook for the March quarter and 2011 should reflect its all-time high order backlog.

STMicroelectronics NV-(Jan. 24)

MARKET EXPECTATIONS: STMicroelectronics is expected to post fourth-quarter revenue at the middle to higher end of the group's target range of $2.71 billion to $2.84 billion. Management is also expected to reiterate its outlook for the market for 2011. In October, the group said it expects the semiconductor market it serves, which excludes memory chips, to grow between 5% and 10%, a prediction analysts believe is still realistic. Many analysts say the group is well positioned to benefit from the rising demand for chips in the automotive and industrial sectors, which should offset weakness in other areas such as set-top boxes.

MAIN FOCUS: The key focus will again be on ST-Ericsson, STMicro's wireless joint venture with Telefon AB L.M. Ericsson, which is expected to again post a material loss in the fourth quarter. Analysts will closely eye any indication from management about when the company may reach break-even. While some analysts say this point could be reached in the second-half of the year, others are more pessimistic and don't expect the JV to be profitable until 2012. Eyes will also be on ST-Micro's gross margin, which, if above expectations, could be a positive catalyst for the share, and its guidance for the first quarter.

Infineon Technologies AG-(Feb. 1)

MARKET EXPECTATIONS: First-quarter results are expected to come within the company's guidance for sales in line or slightly below the EUR942 million posted in the third quarter, which excluded its wireless unit. Still, as Infineon's forecast is based on an dollar exchange rate of $1.40 to the euro, the weaking of the European currency in the final quarter last year means a currency boost is possible.

MAIN FOCUS: Infineon's full-year guidance could prove to be conservative and the company may have to raise it, analysts say. Infineon expects sales to grow up to 10% from the EUR3.3 billion posted last fiscal year. Analysts note that auto demand continues to remain buoyant. Infineon's automotive unit contributes 39% to the semiconductor maker's overall sales from continuing operations.

ARM Holdings PLC-(Feb. 1)

MARKET EXPECTATIONS: A victim of its own success? Analysts are looking ahead to ARM's fourth quarter results with some concern. The company in the European sector with the by far highest valuation -- for 2010 JP Morgan expects an adjusted price-to-earnings-ratio of 56 times, compared with ASML's 13.3 times -- ARM could be hit by slowing trends in consumer demand for TVs and PCs. Still, as its chip designs are included in even traditional notebook computers, profit next year could grow to as much as 76 cents a share, analysts say, giving the company a more reasonable P/E multiple of 36 times, albeit still high compared with the sector average.

MAIN FOCUS: Investors understand that ARM is uniquely positioned with its portfolio for the growing demand in chips for smartphones and tablets. However, it has to prove with its outlook that the high valuation is justified and hardly any analyst out there believes there is much further upside right now.

Источник: Total Telecom

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