U.S. Chipmakers Buoyed by PCs, Networking: Industry Outlook
Sept. 24 (Bloomberg) -- Deane Miller searched for a new personal computer for six months. Last month, she saw an ad that sounded so good her mother warned it might not be true.
Miller, 30, got $400 for committing to three years of Internet access from Microsoft Corp. After a $50 rebate from eMachines Inc., she wound up spending $27 at her local Staples Inc. store for a PC with an Intel Corp. Celeron processor. ''With my budget, it was the best I could do,'' said Miller, who lives in Franklin, Tennessee. Her brother took advantage of the same offers soon after.
Miller and fellow consumers, lured by rebates that make computers practically free, are spurring an expected 25 percent rise in PC sales in the third quarter. That's translating into higher third-quarter profit for Intel, whose chips power more than 80 percent of new personal computers.
Broadcom Corp. and PMC-Sierra Inc., which make chips that run telecommunications equipment, will have higher earnings as companies buy more gear to speed information across networks. Even memory-chip companies, which suffered when prices tumbled almost 40 percent in the first half, are on the comeback as limited supply for the processors that save data on PCs boosted prices almost threefold in the past three months. ''We are seeing strength across the board,'' said portfolio manager John Spytek of Banc One Investment Advisors, which owns shares of Intel, Texas Instruments Inc. and Micron Technology Inc. ''PCs really snapped back.''
The Standard & Poor's Electronic Semiconductors Index is the second-best performing group in the S&P 500 Index this quarter, rising 17 percent. Intel shares have gained 26 percent, and Micron, the No. 1 U.S. maker of memory chips, is trading at its highest level in four years.
4th-Qtr Caution
Analysts caution that the fourth quarter may not be so rosy. An earthquake this week in Taiwan shut down manufacturing at many of the island's plants that make processors and circuit boards. The closure could hurt sales and profits for companies including Intel, Motorola Inc. and Advanced Micro Devices Inc. if they experience shortages during the fourth-quarter holiday period. Shares of Intel, the world's largest chipmaker, have declined 12 percent since Friday.
The quake ''is going to be material -- the question is how much,'' said analyst Drew Peck at SG Cowen Securities.
In the third quarter, Intel benefited from the rush to cheap PCs and from increasing supply of some of its most powerful chips. The Santa Clara, California, company has cut prices three times this quarter, helping spur demand even more.
Intel is expected to report third-quarter profit of 60 cents a share or more, several analysts said. That compares with the average forecast of 57 cents from First Call Corp. Sales could be as high as $7.8 billion.
A year ago, Intel's profit was $1.56 billion, or 44 cents, on sales of $6.73 billion.
AMD, Micron
Advanced Micro Devices, Intel's biggest rival in microprocessors, is struggling with manufacturing problems on older chips as it ramps up production of its new Athlon chip. Athlon is designed to compete with Intel's Pentium III.
Advanced Micro, based in Sunnyvale, California, is expected to have a third-quarter loss of as much as $1.24 a share, according to First Call. The average analyst forecast is for a loss of 97 cents. A year ago, the company eked out a profit of $1.01 million, or a penny a share.
Micron's loss for the fourth quarter ended Sept. 2 is forecast to narrow to 18 cents a share from 42 cents a year earlier. Though prices for its chips increased, Micron said much of the rise came late in the quarter. Boise, Idaho-based Micron said it will start to benefit from rising prices in the fiscal first quarter that ends in November. ''Micron will be phenomenally strong,'' said Banc One's Spytek.
Texas Instruments, Motorola
Texas Instruments' third-quarter profit is expected to double to 43 cents as demand for digital signal processors soars. DSPs are the fastest-growing part of the chip industry, and Dallas-based Texas Instruments is estimated by analysts to control about 47 percent of the $4.4 billion market. In the year- ago quarter, Texas Instruments' profit was $164 million, or 21 cents, on sales of $2.11 billion.
Motorola, the world's No. 3 semiconductor maker, is forecast to have higher profit as demand for its chips and cellular phones rebounds.
Motorola slashed 24,000 workers last year, closed or sold aging chip plants and cut its number of chip products to less than 20,000 from 94,000 a few years ago. The semiconductor unit turned a profit of $47 million in the first quarter of this year, the first time in five quarters that the unit made money.
Motorola said it hasn't determined how the earthquake in Taiwan will affect production. The company contracts out some of its chip-making to Taiwanese companies.
Analysts expect Schaumburg, Illinois-based Motorola to earn 52 cents a share, according to First Call. Profit was $40 million, or 7 cents, on sales of $7.15 billion in the year- earlier period.
Communications Booming
Companies updating networks and linking workers in far-flung offices are propelling sales of equipment that moves data among computer systems. Sales of so-called ATM equipment are expected to rise to $3.6 billion this year from $2.6 billion last year.
The boom in communications equipment is buoying PMC-Sierra, Broadcom and rivals whose chips run the gear. ''Communications is doing phenomenally well,'' said analyst Jeffrey Lipton of Hambrecht & Quist. He rates PMC-Sierra and Broadcom shares ''buy.''
Analysts expect sales at PMC-Sierra, based in Burnaby, British Columbia, to climb 57 percent to $66 million and earnings per share to triple to 24 cents from 8 cents. PMC's two biggest customers, No. 1 Internet-equipment maker Cisco Systems Inc. and top phone-equipment maker Lucent Technologies Inc., have seen their sales jump as companies race to handle rising data traffic.
Profit at Broadcom, the No. 1 maker of chips for cable modems and digital TV set-top boxes, is expected to more than double to 20 cents.
Broadcom ''continues to be one of the best-positioned competitors in the communications semiconductor market,'' Merrill Lynch & Co. analyst Joseph Osha wrote in a note to investors. He expects third-quarter sales to more than double to $126 million.
Per-share profit at Applied Micro Circuits Corp., which makes chips for fiber-optic and computer network equipment, is expected to rise to 13 cents from a split-adjusted 9 cents a year earlier. Applied Micro's customers include 3Com Corp., Cisco and Lucent. Its shares surged more than sixfold in the last year.
Programmable Chips
Fiscal second-quarter profit at Xilinx Inc., the No. 1 maker of programmable logic semiconductors, is forecast to rise to 33 cents from 19 cents. The San Jose, California-based company's shares have gained 93 percent this year.
Xilinx's chips let customers such as Cisco, Lucent and International Business Machines Corp. tailor functions to ''get products to market quickly,'' said Seth Dickson, a Warburg Dillon Read LLC analyst who rates Xilinx ''buy.''
Vitesse Semiconductor Corp., the biggest maker of non- silicon chips that speed telecommunications, is in a market ''that's exploding,'' said Richard Faust, an Adams, Harkness & Hill, who rates Vitesse ''strong buy.''
Vitesse, based in Camarillo, California, specializes in gallium arsenide-based chips, a medium that lets data travel faster than silicon-based processors.
Faust expects Vitesse's fiscal fourth-quarter earnings to be 25 cents a share, also the average First Call estimate, compared with 21 cents a year ago. He expects revenue to rise about 48 percent to $80 million.
Company 3rd Qtr Year-ago # of
Estimate Results Analysts Intel 0.57 0.44 29 AMD (0.97) 0.01 18 Motorola 0.52 0.07 28 Texas Instruments 0.43 0.21 24 Micron Technology* (0.18) (0.42) 21 PMC-Sierra 0.24 0.08 18 Broadcom 0.20 0.08 15 Xilinx+ 0.33 0.19 21 Vitesse! 0.25 0.21 16 Applied Micro% 0.13 0.09 11
All estimates from First Call Corp.
*Fiscal fourth quarter ended Sept. 2 +Fiscal second quarter !Fiscal fourth quarter %Fiscal second quarter |
