Rim Semi will be announcing in my lifetime, so why not just wait this out while Brad gets us born.
U.S. Chip Companies' Results To Benefit From Better Demand
By DONNA FUSCALDO Dow Jones Newswires
NEW YORK -- Thanks in part to low inventory levels and rising average selling prices, many U.S. semiconductor companies are expected to post improved third-quarter results when they start reporting earnings next week.
The seasonally strong September quarter brought good news to chip investors when Intel Corp. preannounced on the upside twice during the quarter and Texas Instruments Inc. narrowed its third-quarter revenue guidance into the top end of its range.
Fueled by increased sales of laptop computers, better-than-expected telephone handset growth and an improvement in the telecommunications sector, analysts said the third-quarter's strength will likely carry into the fourth quarter.
"The third quarter was indeed a strong quarter for the semiconductor industry and we expect that fundamentals for the fourth quarter will remain strong," said First Albany analyst Auguste Richard in a recent research report.
While the analyst acknowledged that semiconductor stocks have been enjoying lofty valuations, he said they are justified because the chip sector should continue to move higher as economic conditions improve.
In the case of chip giant Intel, analysts said the company will likely meet or even beat the Thomson First Call consensus, which stands at earnings of 23 cents a share and sales of $7.7 billion. In the year-ago third quarter, Intel reported earnings of 11 cents a share and sales of $6.5 billion.
Joseph Osha, an analyst at Merrill Lynch, said Intel's preannouncements lead him to believe the Santa Clara, Calif., chip maker will also have a good fourth quarter.
"We think that visibility through the third quarter and into the fourth has to be good in order to support the upbeat outlook from Intel's always-conservative financial team," wrote Mr. Osha in a research report.
According to the analyst, Intel is not only benefiting from the launch of its wireless chip, Centrino, but also from better pricing and advanced manufacturing technology which has improved margins. Mr. Osha expects Intel's microprocessor business to grow 14% sequentially in the third quarter and for its communications and wireless units to also grow quarter over quarter. Intel is slated to report third-quarter results on Oct. 14.
Mr. Osha is looking for Intel to post third-quarter earnings of 23 cents a share and sales of $7.7 billion. For the fourth quarter, the analyst has Intel weighing in with sales of $8.2 billion and earnings of 27 cents. The consensus for the fourth quarter stands at earnings of 26 cents a share and sales of $8.3 billion.
Intel's archrival, Advanced Micro Devices Inc., is also expected to report results in line with expectations, but analysts said strength will largely come from AMD's flash memory business and not its microprocessor unit.
"We believe that the AMD Athlon XP processor, which is positioned against Intel's low-end Celeron, is losing share," wrote Thomas Thornhill, an analyst at UBS in a recent research report. He is forecasting microprocessor growth of 4% sequentially for AMD in the third quarter, which is starkly lower than his target of 15% growth for Intel. The analyst does expect AMD's flash sales to increase 13% to 15% in the third quarter.
Mr. Thornhill has AMD weighing in with a third-quarter loss of 34 cents a share and sales of $894 million. Analysts, according to First Call, expect AMD to lose 37 cents a share and post sales of $858.6 million. In the year-ago third quarter, AMD reported a loss of 74 cents a share and sales of $508.2 million. AMD will provide Wall Street with its financial results on Oct. 16.
Looking out to the fourth quarter, which is one of the strongest three-month periods for personal-computer chip makers because of the holiday selling season, Mr. Thornhill is calling for sequential sales growth of 8%, which is based on microprocessor growth of 6% and flash memory chip growth of 10%.
During the third quarter, PC chip companies weren't the only ones to enjoy some strength. The cellular-telephone chip market also saw increased demand, in large part because the amount of chips used in cellphones has increased rapidly. One of the companies that stands to benefit from an improving handset market is Texas Instruments, which has a large exposure to that segment.
While the Dallas semiconductor company also makes chips used in consumer electronics and PCs, Merrill's Mr. Osha said the company's optimism about the third quarter comes largely from the wireless market.
Earlier in the quarter, Texas Instruments narrowed the company's revenue range for the September quarter to between $2.39 billion to $2.49 billion, citing better-than-expected demand in the wireless sector.
Mr. Osha said Texas Instruments will likely weigh in with earnings of eight cents a share and sales of $2.45 billion, when it reports earnings on Oct. 20. Analysts, according to First Call, have Texas Instruments reporting earnings of nine cents a share and sales of $2.4 billion. In the year-ago third quarter, Texas Instruments posted earnings of nine cents a share and sales of $2.2 billion.
As for the fourth quarter, Mr. Osha is looking for Texas Instruments to forecast "flat to slightly up" sequential sales and earnings of 11 cents. Analysts are expecting Texas Instruments to have earnings of 11 cents and revenue of $2.48 billion.
The improving handset market is also expected to bode well for analog chip makers such as Linear Technology Corp., which analysts said at the very least will meet expectations.
According to UBS's Mr. Thornhill, new generations of cell phones require more analog chips for such things as power management, enhanced audio and color screens. The analyst expects Linear to report sales of $174.3 million and earnings of 22 cents in its fiscal first quarter. Analysts, according to First Call, have the Milpitas, Calif., chip company earning 21 cents a share on sales of $170 million. In the year-ago first quarter, Linear reported earnings of 17 cents a share and sales of $142 million. Mr. Thornhill noted that Linear's backlog for the December quarter is "building quite well."
While the semiconductor segment performed well during the third quarter, the makers of chip-making equipment weren't so lucky. Despite a hefty surge in chip equipment stock prices in recent weeks, analysts expect order growth in the third quarter to be subdued.
"We believe that the capital intensity of the industry is declining," said First Albany's Mr. Richard. "Process transitions are increasingly expensive and complex and few companies are opting to move to the next-generation process node quickly."
Couple that with chip makers teaming up to share the burden, and Mr. Richard said the percentage of capital spending on semiconductor equipment will eventually decline. For the third quarter, Mr. Richard is calling for orders for the industry to increase 10% sequentially.
In the case of chip equipment leader Applied Materials Inc., which closes its quarter in October, Mr. Richard expects earnings of five cents a share on sales of $1.1 billion, in line with the First Call consensus. In the year-ago period, Applied Materials reported earnings of nine cents a share and sales of $1.4 billion.
While some companies would be hurt by a shift in demand to Japan and Taiwan, Mr. Richard said it bodes well for Applied Materials because of its exposure in those regions. Mr. Richard is calling for a sequential increase in orders of 10% to 15% in its October quarter.
None of the analysts own shares of the chip companies mentioned in this article, but UBS and Merrill intend to seek investment banking relationships with chip makers.
Write to Donna Fuscaldo at donna.fuscaldo@dowjones.com
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