(UPDATE) Chip Makers Seen Posting Solid Results Amid Industry Recovery
Dow Jones Online News, Monday, April 12, 1999 at 15:58
NEW YORK -(Dow Jones)- U.S. semiconductor manufacturers held up well
in the typical slow first quarter while the industry continued to
recover from last year's slump, analysts said Monday.
Intel Corp. (INTC), the world's largest chip maker, should report
earnings in line with analysts' forecasts even though the PC market had
its usual post-Christmas hangover. But other companies involved in less
seasonal businesses - telecommunications in particular - have a shot to
report surprisingly strong earnings.
"Relative to expectations, the quarter is going to be quite
positive," said James Barlage, an analyst at Lehman Bros. "The industry
is still struggling off its low point" from last year.
Barlage noted that Advanced Micro Devices Inc. (AMD) was the only
major chip company to warn of weaker-than-expected sales, indicating
that the quarter was relatively calm for the volatile industry. "You
have to go back over two years to find only one (earnings)
preannouncement" in a quarter, he said. AMD preannounced the quarter
three times as production problems mounted.
However, the 10 companies in the Dow Jones semiconductor sector index
are expected to show earnings growth of 28% compared with the first
quarter of 1998, when earnings actually fell 24%. In the fourth quarter,
earnings for the group rose only 2%.
Joe Osha, an analyst at Merrill Lynch & Co., expects Intel earned 55
cents a share on sales of $7.3 billion, right in line with the mean
estimate of analysts surveyed by First Call. That compares with
approximately 40 cents a share, excluding a one-time charge, on sales of
$6 billion in last year's quarter. These estimates account for a 2-for-1
stock split, which went into effect Monday.
The Santa Clara, Calif.-based chip giant cut prices aggressively
throughout the quarter, particularly in its Celeron line of economy
chips, as it tried to regain lost market share in the U.S. retail
business. Intel also released its Pentium III line in the quarter.
Mark Edelstone, an analyst at Morgan Stanley Dean Witter, said the PC
market probably closed on a stronger note in the last couple of weeks in
March after experiencing seasonal weakness in January and February.
This, coupled with AMD's missteps, should help Intel make his estimate
of 57 cents a share, Edelstone said.
Texas Instruments Inc. (TXN) is a different company from a year ago,
having sold its troubled memory chip operations to Micron Technology
Inc. (MU) last summer. The Dallas-based company now concentrates on
digital signal processors, or DSPs, which are primarily used in modems,
cell phones and disk drives.
William Milton, an analyst at Brown Brothers Harriman, said he
expects Texas Instruments to report earnings of 60 cents a share on
sales of $2.07 billion. That compares with earnings of 44 cents a share,
excluding charges, on sales of $2.18 billion a year ago.
Milton said DSP chip sales to cell phone makers should have been
"quite strong" in the period, with weakness in the modem market. Texas
Instruments' shares were roiled in March on concerns that sales to the
disk drive industry were soft, but Milton said those worries may have
been overblown.
His main concern is the cost of a new employee profit-sharing plan,
which he estimates could trim 10 cents a share from TI's earnings.
Also benefiting from good cell phone demand was analog chip maker
Linear Technology Corp. (LLTC). Drew Peck, an analyst at SG Cowen, said
he sees an outside chance of "some modest upside" to the mean estimate
of 31 cents a share. But investors will likely get more enthused about
the company's outlook for the rest of 1999, as the analog chip market
recovers from the doldrums of last year, he said. Last year the company
reported earnings of 30 cents for the quarter.
"The analog sector was hurt worst (in last year's downturn) but it is
also expecting one of the strongest recoveries in the semiconductor
sector today," Peck said. "Linear Technology should be one of the
beneficiaries of that phenomenon."
Chip equipment companies aren't expected to show year-over-year
recovery until the June quarter, said Gunnar Miller, an analyst at
Goldman Sachs & Co. But he said the companies should show improvement
from the December quarter, and several have an opportunity to report
earnings ahead of expectations.
He said Teradyne Inc. (TER), which makes semiconductor test
equipment, could report earnings two cents ahead of his official 18
cents-a-share estimate. A year ago, Teradyne earned 58 cents a share on
sales of $431.6 million.
"Teradyne seems especially well positioned for better results as a
recovery picks up momentum," he said. "We're getting better visibility
in this space."
-By Christopher Grimes; (201) 938-5253
Copyright (c) 1999 Dow Jones & Company, Inc.
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