anEck Semiconductor ETF (SMH)

[rayrohn]

Standard & Poor's Rating Change

Forecast: We project that revenues will advance 1.6% in 2008, reflecting our outlook for solid sales growth from the storage semiconductor and systems business, supported by new product cycles. In addition, we see market share gains in hard disk drive (HDD) semiconductor products due to the completed acquisition of Infineon Technologies' HDD business and new design wins. For 2009, we forecast revenues will decline 17.1%, on our view of a weak IT spending environment amid the difficult economy. We expect non-GAAP gross margins of 46.8% in 2008 and 46.6% in 2009, wider than the 45.9% in 2007, reflecting our expectation of better cost absorption from higher sales and improved product mix. LSI has been making progress in integrating Agere Systems, in our opinion, and we think that synergies will reduce expenses in 2008. However, we forecast expenses will de-leverage in 2009 on lower sales that we anticipate. As a result, we project the operating margin will improve to 8.1% in 2008, versus 7.5% in 2007, but then decline to 5.7% in 2009. Our operating EPS estimates are $0.31 for 2008 and $0.17 for 2009, excluding one-time acquisition-related charges, compared to $0.18 in 2007.