TOM this just in.....
Chip Companies' Downtrodden Earnings May Have
Bottomed
By Therese Poletti
SAN FRANCISCO (Reuters) - U.S. semiconductor companies, still in the midst of one of the
longest-running industry slumps, are expected to report a lackluster third quarter but analysts said that
the worst may be over.
Buoyed by a rebound in personal computer sales - in part due to the depletion of bloated inventories
from earlier in the year - chip makers that provide components to PC makers are expected to report
third quarter earnings that are flat to up slightly, compared with the most recent dismal second quarter.
''I think the industry has seen a bottom here,'' said Mark Edelstone, a Morgan Stanley Dean Witter
analyst. ''Everything that touches the PC is doing pretty well. Everything else is pretty mixed.''
Last quarter was fraught with chip maker after chip maker pre-announcing earnings disappointments,
as the economic malaise in Asia, a glut of PCs and memory chips and too much manufacturing
capacity all fueled an industry downturn.
While analysts still forecast a sharp decline in worldwide chip sales this year - the third year of the
industry downturn - Wall Street has been heartened this quarter by the fewer number of negative
earnings warnings.
''We believe that most of the industry has hit bottom and expect flat sales or sequential improvements
in the third quarter,'' said John Lazlo, a PaineWebber Inc. analyst. ''Unlike the prior three quarters, we
do not expect much unfavorable news.'' Very few companies have had negative pre-announcements.
Indeed, last month, the world's largest chip maker, Intel Corp. (INTC - news), which develops
microprocessors - the brain chips of almost 90 percent of the world's PCs - had a positive surprise for
Wall Street last month.
Intel said that it sees a better-than-expected third quarter, due to strong demand in North America and
Europe. Its third quarter revenues will be eight to 10 percent above second quarter's revenues of $5.9
billion, the Santa Clara, Calif.- based company said.
Advanced Micro Devices Inc (AMD - news) of Sunnyvale, Calif., which makes Intel-compatible
processors and other semiconductor products, is also expected to gain from the recent rebound in PCs.
While AMD is still expected to report a loss, it may be narrower than the biggest bears on Wall Street
are expecting.
''They have a good shot at getting close to break even,'' said Dan Niles, a BancBoston Robertson
Stephens analyst. ''They are seeing a pretty good acceleration of their processor business. Flash
(memory) which hurt them last quarter is flat.'' Unit shipments should be up strongly versus second
quarter.
Texas Instruments Inc. (TXN - news) is also expected to see a sequential boost in profits, since it has
sold off its money-losing memory chip business to Micron Technology Inc. (MU - news) This quarter
will be TI's first without the DRAM (dynamic random access memory) business.
''DSPs (digital signal processors)...will be more of a driver and a bigger part of the revenue mix now
that DRAMs are gone,'' said Bill Milton, a Brown Brothers Harriman analyst. ''There will still be some
residual losses from DRAMs in the quarter.'' Milton said TI will have expenses from some of its
employees who were not absorbed in the Micron deal.
But while the PC industry is providing some bright spots to the semiconductor industry, other chip
makers develop chips in the areas of analog, custom logic, memory, or fortelecommunications are still
under pressure.
Analog Devices Inc. (ADI - news), LSI Logic Corp. (LSI - news) and VLSI Technology Inc. (VLSI -
news) have all pre-announced earnings disappointments. ADI of Norwood, Mass. cited inventory
buildup and weak market conditions in Japan and Southeast Asia while Milpitas, Calif.- based LSI
Logic said sluggish sales in the U.S. hurt its earnings.
San Jose, Calif.-based VLSI cited the overall industry slump for an anticipated third quarter
disappointment, but also said that it expects an industry recovery sometime in 1999.
Fri Oct 02 | Thu Oct 01 | Wed Sep 30 | Tue Sep 29 | Mon Sep 28
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