U.S. Chipmaker Profits Rise on PC Shipments: Industry Outlook
Bloomberg News
December 22, 1998, 8:42 a.m. PT
Santa Clara, California, Dec. 22 (Bloomberg) -- A boom in
personal-computer buying is powering the biggest increase in
semiconductor sales since 1995, boosting fourth-quarter profit at
Intel Corp., the No. 1 maker of computer chips.
PC shipments are forecast to rise 12 percent from the fourth
quarter of last year, and more than 80 percent of the machines
have Intel chips inside. Some computer makers are even having
trouble getting the processors they need.
''We could have a much better Christmas season if we got all
the (Intel) Pentium IIs we wanted,'' said Eugene Kiang, president
of computer maker Boldata Systems in Fremont, California.
Intel isn't the only chipmaker that's recovered from a rough
year. Rival Advanced Micro Devices Inc. and memory-chip maker
Micron Technology Inc. are coming out of long slumps as computer
makers tap them for more supplies. The whole industry, in fact,
is picking up after a three-year funk.
''The fourth quarter is going to be a boomer,'' said Bill
McClean, president of market research firm IC Insights Inc.
''It's pretty encouraging for next year, too.''
Chip sales jumped 13 percent in the fourth quarter from the
third, according to IC Insights, marking the biggest sequential
rise in sales since the second quarter of 1995.
Intel
Industry bellwether Intel is expected to earn $1.06 a share,
up from 98 cents, or $1.74 billion, in the year-ago period.
At least one analyst is betting demand will carry over into
the first quarter, traditionally a weak period for the company
because holiday and back-to-school PC sales are over.
Mark Edelstone at Morgan Stanley Dean Witter & Co. had been
expecting Intel's revenue to fall 4 percent in the first quarter
from the fourth. Now, he sees a 1 percent decline, and raised his
1999 earnings estimate to $4.60 a share from $4.40 as a result.
The Santa Clara, California-based company already advised
investors that the fourth quarter will beat expectations.
That's a far cry from the first quarter, when it warned
about slumping sales, and the second quarter, when profit fell
29 percent.
Rebound
Adding to the industry rebound are higher prices for dynamic
random-access memory chips, the most common memory chip in PCs.
Selling for as little as $7.70 each earlier this year, some 64-
megabit DRAMs now go for about $10.80.
That's good news for Boise, Idaho-based Micron, one of the
top DRAM makers. It's expected to lose 29 cents a share in the
fiscal first quarter that ended in November, compared with a loss
of $89.1 million, or 42 cents, in the fourth quarter. A year
earlier, Micron has a profit of $9.6 million, or 4 cents a share.
Chipmakers got into trouble after a boom in PC sales in 1995
that was spurred by Microsoft Corp.'s Windows 95 computer
operating system. The companies built lots of new plants --
especially for making DRAMs -- just as the boom started to ebb.
Now, many of those plants are in mothballs, including one
that Micron built in Utah. In addition, the economic crisis in
Asia stymied plans by manufacturers there to add new factories.
With fewer factories pumping out chips, there may be an end to
the chip recession.
McClean at IC Insights expects total sales in the chip
market to rise 12 percent in 1999 after falling 8 percent this
year and rising an anemic 4 percent in 1997.
''We are in the beginning stages of a multiyear cyclical
advance for the industry,'' said Edelstone.
Investors Profit
Investors who bought chip stocks when they were down are the
big winners. Intel traded as low as 65 21/32 in June, when it
looked like the Asian crisis would spread around the world,
causing recessions in Europe and even the U.S. On Friday, the
shares rose 3 1/8 to close at 120, up 74 percent for the year.
Texas Instruments Inc., the biggest maker of chips for
digital mobile phones, also was hurt by Asian recessions, falling
to 45 3/8 in May. Now that the worst seems to be over in Asia, TI
shares are back. They rose 2 3/4 to 86 11/16 on Friday, up
93 percent this year.
Dallas-based TI is expected to earn 54 cents a share in the
fourth quarter, down from 55 cents in the year-ago period.
Makers of chips used in networking equipment are doing well
as more companies link computers and tap the Internet.
Altera Corp., based in San Jose, California, is expected to
earn 42 cents a share in the fourth quarter, up from
$36.7 million, or 38 cents, in the year-ago period.
Another Bust?
The question is whether the PC boom lasts into 1999, when
holiday buying is long forgotten. Many analysts say it will, in
part because some companies will solve the Year 2000 computer bug
by buying new computers. That could mean a surge in sales.
The risk is that the world economy falters again. Though
it's stable now, there's no telling if another country, perhaps
Brazil or China, will be forced to devalue its currency, sending
interest rates soaring and snuffing out growth.
The slowing global economy's already taken its toll on
Motorola Inc., the third-biggest maker of semiconductors.
The company plans to contract out as much as half of its
chip production by 2002. It offered voluntary severance packages
to 25,000 U.S. semiconductor workers and expects to cut about
5,000 of its 45,000 chip employees worldwide by next year.
The slump's hurting Motorola's profit, too. The Schaumburg,
Illinois-based company is expected to earn 23 cents a share, down
from 65 cents in the year-earlier period.
J.P. Turner & Company analyst Rick Berry predicts many chip
shares have risen too much given that global growth is slowing.
''We are nowhere near a complete recovery,'' Berry said.
For now, though, even the specter of another economic
emergency isn't spoiling the chipmakers' holiday.
4th-Qtr Year-Ago Number of
Estimate EPS analysts
Intel $1.06 $0.98 30
AMD 0.17 (0.09) 23
Motorola 0.23 0.65 28
TI 0.54 0.55 21
Altera 0.42 0.38 23
Xilinx # 0.40 0.40 22
LSI (0.02) 0.23 18
Natl Semi* (0.20) 0.16 18
Micron^ (0.29) 0.04 17
# Fiscal third quarter
* Fiscal third quarter ending in February
^ Fiscal first quarter ending in November |
