Here's an analysis of the chip makers:
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=DJ Analysts See Better Times For U.S. Chip Makers >INTC TXN
By Christopher Grimes
NEW YORK (Dow Jones)--U.S. semiconductor companies are expected to post
earnings far better than the dismal results of a year ago, adding to Wall
Street's optimism that chip makers are embarking on a new growth cycle.
"Chips are on an upswing," said David Wu, an analyst at ABN Amro.
Analysts expect especially strong performances from companies that make chips
used in communications equipment such as cell phones, modems and networking
gear. Communications-centric Texas Instruments Inc. (TXN) and analog chip
makers like Linear Technology Corp. (LLTC) and Maxim Integrated Products Inc.
(MXIM) are expected to have performed well in the period, analysts said.
"The strong demand for communications equipment continues to be the most
exciting growth driver for the semiconductor industry," said Joe Osha, an
analyst at Merrill Lynch, in a research bulletin.
Second-quarter earnings for the Dow Jones Semiconductor Index are projected
to be up 78% from the same period a year ago, when an inventory glut in the PC
industry and weakness in Asia hurt chipmakers, according to First Call Corp.
Earnings for the chip group are projected to rise 43% for 1999, compared with a
decline of 24% in 1998, First Call said.
Still, companies that make chips used in personal computers had mixed
fortunes in the second quarter - usually a lukewarm time for the PC market
anyway.
Top chip maker Intel Corp. (INTC) is a controversial subject among analysts
right now, as the company cuts costs to combat the trend toward cheap PCs. Some
analysts think the cost-cutting is keeping pace with falling PC prices, but
others don't. And Micron Technology Inc. (MU) is still suffering from limp
prices for memory chips, the most common semiconductor found in a PC.
Some Possible Upside Surprises
Nonetheless, analysts were encouraged by the fact that only one major chip
company issued an earnings warning: Advanced Micro Devices Inc. (AMD), Intel's
dark-horse rival. The company blamed pressure from Intel for its projected $200
million loss in the quarter.
James Barlage, an analyst at Lehman Brothers, said Intel likely regained some
of the market share it lost from AMD in the U.S. consumer market during the
second quarter. He thinks there is a "reasonable possibility of Intel showing a
(positive) surprise" when it reports earnings Tuesday.
Barlage expects for the company to report split-adjusted earnings of 55 cents
a share on sales of $7.1 billion, compared with 33 cents a share on sales of
$5.9 billion in the same period a year ago. Barlage's per-share estimate is two
cents higher than the First Call consensus.
Barlage said Intel's average selling prices could have dipped in the second
quarter as the company reclaimed territory lost to AMD. But on the whole, he
said, the company's chip prices should "hold relatively flat" in the
foreseeable future.
"They're pushing into the workstation and server market as an offset to the
sub-$1,000 PC growth that's occurring," he said.
Texas Instruments could manage to beat Wall Street estimates, ABN's Wu said.
The company likely did well in its primary market for digital signal
processors, which power cell phones, modems and disk drives.
But the gravy for TI probably came from its analog chip business, Wu said.
"The sexy story is DSPs. But if TI has an earnings surprise, it's because of
analog chips," he said.
Texas Instruments is seen earning 87 cents a share in the period, compared
with 35 cents a share in the June period a year ago, according to First Call.
Erika Klauer, an analyst at DeutscheBanc Alex Brown, is expecting a strong
performance from analog chip maker Linear Technology. Klauer expects Linear to
report net income of 34 cents a share on sales of $140 million, compared with a
split-adjusted 31 cents a share on sales of $132 million a year ago.
Linear's chips are found in everything from PCs to cell phone to appliances,
she said, so the company is not only benefiting from "a recovery in
semiconductors, but also from the strong economy."
Klauer said Linear will likely guide investors to expect continued growth.
Chip equipment companies should continue to show a rebound from the lean
times last year, said Sue Billat, an analyst at BancBoston Robertson Stephens.
Chip companies are scrambling to move to the next-generation size of chips,
.18 micron, from the current standard .25 micron. And that's driving demand for
new chip equipment, she said.
"We expect both the revenue and the booking outlook to be positive," Billat
said.
She expects Lam Research Corp. (LRCX) returned to profitability in the June
quarter, with earnings of 10 cents a share on revenue of $192 million, after
five straight quarterly losses. That compares with a loss of five cents a
share, excluding charges, on revenues of $230.6 million.
As is the case at many chip equipment companies, orders are beginning to pick
up at Lam, she said. "They have completed their turnaround."
- Christopher Grimes; 201-938-5253
(END) Dow Jones Newswires 09-07-99
1441GMT
(AP-DJ-07-09-99 1441GMT)
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