"Same Old Song, Different Quarter"
By Jeff Chappell -- 4/11/2003
Electronic News
e-insite.net
Earnings season kicks into high gear next week, and it doesn't look like things improved drastically in the March quarter, nor does it seem as if there are significant improvements in store for the current one.
Judging from who has reported so far, there are no dramatic improvements on the near horizon, although Wall Street and market research companies still seem to have faith in an improvement for the second half of 2003. But troubled economies, the war in Iraq, and severe acute respiratory syndrome (SARS) continue to take their toll on the industry in the first half of the year.
Last week French chipmaker STMicroelectronics said it would fall short of its Q1 goals, while domestic semiconductor IP provider Virage Logic reduced its guidance for the March quarter. This week domestic IC maker Microchip Technology cut its guidance for the March quarter for the second time in three weeks.
Meanwhile, semiconductor fab equipment services and support company Metron Technology reported earlier this week a loss for its fiscal Q3, which ended in February, and forecast that revenue would be down slightly for the current quarter.
In the back end, Taiwanese assembly, packaging and test contractor Advanced Semiconductor Engineering Inc. (ASE), which reports its Q1 earnings later this month, said Thursday that its overall net and packaging revenues were down quarter-over-quarter. "For the most part, a pull back in orders by communication centric customers resulted in a larger than previously expected revenue shortfall at ASE," suggested Mehdi Hosseini, SoundView Technology Group analyst, in a research note.
Q1 revenue for ASE's test business disappointed SoundView. Based on revenues reported on a monthly basis, ASE Test posted revenue of $76 million in Q1. "We were expecting an in-line quarter, but first quarter revenues came $5 million short of our expectations," Hosseini said.
ASE rival Siliconware's Q1 revenue of $158 million came in above SoundView expectations, however, Hosseini noted. "We believe that new product ramps by such customers like ATI, Broadcom, Nvidia, Mediatek and Via enabled the company to report a slight uptick to first quarter estimates," he said.
Next week capital equipment giant Novellus Systems Corp. kicks off on Monday the slew of semiconductor supply chain earnings reports, followed by ASML and Lam Research later in the week, ATE suppliers Teradyne Inc. and Electroglas, as well as critical subsystems suppliers MKS Instruments and Advanced Energy. On the chip end, giant Intel Corp. and its chief MPU rival Advanced Micro Devices will be reporting, as are Texas Instruments, Motorola, Xilinx and Transmeta, among others.
If most guidance for Q1 holds true, it will be generally flat quarter-over-quarter, although there are bound to be some unpleasant, not-so-surprising surprises a la Microchip and STMicro.
"We expect all of our covered companies to meet March quarter revenue and earnings expectations," James Covello and Amanda Hindlian, analysts for Goldman Sachs Inc., said in a research note. "We believe that business tracked as expected during the quarter and any difficulties related to geopolitical or macroeconomic uncertainty in closing business at the end of the quarter were mitigated by the impact of SAB-101 delayed revenue recognition policies.
"We would expect generally flat revenue with slightly increased earnings guidance in the June quarter as a result of cost cutting measures beginning to take effect," the Goldman Sachs analysts said. The equipment companies tracked by the Wall Street firm include Novellus, Teradyne, Lam Research, Advanced Energy, MKS Instruments, ATMI, KLA-Tencor, Axcelis Technologies, Applied Materials and Credence Systems.
"The very near-term business outlook remains cloudy due to geopolitical uncertainty, which will likely lead the semiconductor equipment companies to guide for flat sequential orders in Q2," the Goldman Sachs analysts said. "We believe several major projects during the quarter may cause actual Q2 orders to be in the range of plus or minus 5 percent sequentially.
"We also expect management tone to be more optimistic than flat guidance would indicate, as growth in H2’03 is likely to be driven by the 300mm/0.13 micron transition," Covello and Hindlian concluded.
Wait 'Til the Second Half
While Q2 may continue the mediocrity of Q1, many still hold out hope for the second half of 2003.
"Our global bottom-up capex model now shows 7.5 percent year-over-year growth in 2003, which implies 10 percent to 15 percent quarter-over-quarter growth in Q3 and Q4," Covello and Hindlian suggested. That is assuming flat orders throughout Q2.
SoundView Technology has a similar outlook for the back end. "We expect the communication end market to remain soft until second half 2003," Hosseini said, discussing the outlook for ASE. "The computing end market is not expected to show any meaningful recovery until the
back-to-school build out season begins in late summer, but such customers like Nvidia and Via are expected to continue to ramp their new products," he said. "The consumer end market is now picking up some momentum in the second quarter. We also expect increased outsourcing by large IDMs going forward," he concluded.
Market Research company Gartner Inc. is also holding out hope for the second half. It's Dataquest unit still expects growth to come, even though it has slashed its outlook for the year in half from its forecast at the beginning of 2003.
"Gartner Dataquest believes that some of the growth opportunity has been pushed out of 2003 and into 2004," the company stated in a recent research alert. It is forecasting capital spending growth of 7 percent, and wafer fab equipment market growth of 8.4 percent for 2003. Gartner Dataquest is still predicting strong growth for packaging and assembly equipment this year, forecasting 21.4 percent growth.
"The economic holding pattern in the first quarter has reduced the growth potential for the semiconductor industry in 2003," Gartner Dataquest analysts concluded in their report. "As a resolution of some issues appears to be under way, the degree of uncertainty is starting to decrease, thus making room for strengthening economic growth going forward.
"It is our review of the supply fundamentals that continues to instill a certain level of optimism in our forecasts. Today, the semiconductor industry is significantly underinvested," the report concluded.
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