Semiconductor Equipment . . . Fahnestock reits Sell on Novellus and $22 target. Thee firm believes that the company's exposure to the copper equipment market gives it above-average growth potential, they are concerned that the company's acquisitions will meaningfully reduce its margins. Also, firm cautions that industry visibility remains low, and while orders from two large Asian company's may boost 3rd quarter bookings, they do not expect a significant order upturn to begin until 4th quarter.
Semiconductors . . . Xilinx reported 2nd quarter revenue of $313.3 million (+2.5% Quarter/Quarter), which was slightly below estimates, but EPS of $.13 was in-line. XLNX guided for 3rd quarter revenue to come in flat to slightly up on a Quarter/Quarter basis. Project an increase of 0.9% Quarter/Quarter and view the guidance as slightly disappointing, however, lower opex leave our EPS estimates unchanged. After a very disappointing level of growth in the March Q, Consumer, Industrial, and Other applications surged 26%. Most of the strength came from Japan and Asia. Continue to expect the majority of PLD growth to come from these non-IT end market applications. Based on Xilinx and Cypress reports, September estimates at Altera and Lattice SEmi are more at risk.
Xilinx reiterated as Neutral at SoundView. Price target cut to $27from $34 and reiterated its Neutral rating. The firm believes Xilinx will trade flat to down over the next few months. Fact that June was weaker than May does not resonate well with firm.
UBS upgraded Xilinx to a "buy" rating from a "neutral". UBS said it views the chip firm as "a very high quality company" and believes investors should take advantage of the lower-than-expected outlook provided for its September quarter and related weakness in the stock over the near term to add to positions.
Fairchild Semi was cut to Neutral at HNG. The firm is saying continued component pricing pressure, an increase in channel inventories, a lack of improvement in its capacity utilization, and a late cycle restructuring leads them to believe that FCS's business should remain challenged for the foreseeable future.
Transmeta was started with an Outperform at Soundview. Price target $2.50. The market has dismissed TMTA as irrelevant in the notebook space due to past execution problems, the new management at the company is set to introduce the TM8000, which they believe will be a viable alternative to INTC's Centrino in 2004.
Xilinx was upped to Buy from Neutral at UBS. The firm feels that they are a very high quality company and feels that investors should take advantage of the lower than expected guidance for the September quarter and related weakness in the stock to add to positions. UBS maintains its $32 target on the name.
Fairchild Semi reported 2nd quarter results with revenues of $348.1 million which were below consensus and roughly in line with estimates, which reduced June 4. EPS was $0.03, a penny better than our estimate and in line with consensus but aided by an unexpected 3-cent tax benefit. The disappointing results were consistent with our previous commentary on the challenging business climate. The computing segment (29% of sales), particularly desktops and notebooks, and the communications segment (21% of sales), specifically wireless handsets, were especially weak. Shipments were healthy in automotive, which grew by 20% but accounted for only 6% of sales. The consumer segment (21% of sales) also saw strength in CD/DVD players, VCRs, and game consoles. The company announced a restructuring plan to lower costs by consolidating manufacturing facilities and eliminating non-core operations. By shutting down several of its facilities in Asia, consolidating fab lines in South Portland, and exiting the non-volatile and hybrid memory business, Fairchild expects to achieve $53-58 million in pretax savings in 2004 with some portion benefit in 2nd half 2003. Guidance for a 4-6% sequential revenue decline was also well below expectations. Visibility remains virtually non-existent as the company’s 13-week backlog declined more than 10% quarter/quarter. Pricing in standard linear and logic markets remain weak, and the company expects operating margins to be flat to down. Analysts are lowering estimates. 2003 EPS is now $0.14 down from $0.22 and new 2004 EPS is now $0.43 down from $0.49. Continue to view Fairchild as a long-term value play that possesses significant potential earnings leverage. However, the current business environment remains weak and the stock lacks a catalyst.
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