Most Analysts Agree '01 Chip Stk Views Need To Come Down
By DONNA FUSCALDO
Of DOW JONES NEWSWIRES
NEW YORK -- Investors may have shrugged off Merrill Lynch analyst Joseph Osha's assessment that the consensus earnings numbers for certain semiconductor companies in 2001 are too high, but most Wall Street analysts agree that estimates need to be lowered.
Earlier Thursday, Osha issued a research note in which he cut his 2001 estimates on Intel Corp. (INTC), Advanced Micro Devices Inc. (AMD), Analog Devices Inc. (ADI), Texas Instruments Inc. (TXN) and Linear Technology Corp. (LLTC).
In the case of Intel and AMD, Osha cited weak demand for personal-computers as well as decelerating growth in their memory businesses. As for Analog Devices, TI and Linear Tech, Osha said that weakness, although not evident in their businesses yet, is already being seen at lower-tier analog companies such as National Semiconductor Corp. (NSM), Fairchild Semiconductor International Inc. (FCS), and Intersil Holding Corp. (ISIL).
The changes in estimates, which Osha said in his note "don't really have any significant impact on our stock picking strategy," didn't cause the selloff that usually ensues, mainly because most of the bad news has already been baked into the stocks. Even so, analysts agree the first half of 2001 could indeed be challenging for analog chip companies as well as for bellwether Intel and its rival AMD.
Considering that demand at the end markets for cellular phones and networking equipment has clearly slowed down and forecasts for growth in 2001 are also being reduced, it is possible that earnings estimates are high, said Jack Geraghty, an analyst at Gerard Klauer Mattison.
"If you had to pick any analyst and tell him he had to raise or lower earning estimates from what they are right now, 99% would lower earnings estimates and that means me, too," he said, adding that when the overall market slows down no company is immune.
Geraghty, who currently has no plans to change his numbers, expects Intel to post full-year 2001 earnings of $1.60 a share, which is 10 cents higher than the consensus estimate, according to First Call/Thomson Financial. Osha's new EPS estimate is for the chip king to earn $1.41 a share. In the case of AMD, Geraghty is calling for earnings of $2.25, compared with the First Call number of $2.04 a share.
Chris Chaney, an analyst at A.G. Edwards agreed that estimates for certain chip stocks may be too high. Back in November the analyst lowered his rating on Analog Devices and Texas Instruments to maintain from buy.
What prompted him to reduced his rating on TI was the inventory correction in the handset market as well as the company's analog exposure to the consumer electronics market, he said. In regards to Analog Devices, the analyst said he was concerned about the problems in the DSL service provider markets.
Although Analog Devices gave a rather upbeat outlook when it reported third-quarter earnings, Chaney said investors are starting to realize that a slowdown isn't going to affect only one segment of the semiconductor market, but a lot of different areas.
The analyst expects Analog Devices to post earnings of $2.50 a share in 2001 and for Texas Instruments to come in with earnings of $1.56, but said that he will probably lower both companies' estimates by five cents, based on guidance given for the first and second quarters.
The First Call consensus is for Analog Devices to post 2001 earnings of $2.54 cents a share and for TI to earn $1.51 a share. Osha's new estimate is for Analog Devices to post earning of $2.39 and for Texas Instruments to come in at $1.40.
In Osha's report, the analyst noted that Analog Devices, Texas Instruments and Linear Tech haven't felt weakness yet. Nimal Vallipuram, an analyst at Dresdner Kleinwort Benson, said analog chip makers are the last to see a slowdown because they operate with the longest lead times from customers. "During an up cycle they tend to have the longest lead time for products and customers cancel products with shorter lead times and then finally cancel the products with the longer lead times," he said.
Vallipuram said sales and earnings at semiconductor companies across the board will be sluggish in the first half of the year. He agreed estimates for 2001 need to come down.
One analyst, David Wu from ABN AMRO, took issue with Osha's call Thursday. He said that he would cut numbers based on "something as opposed to nothing."
"I might have to cut numbers but not based on some divine revelation," he said. Wu, who is in the high range of expectations for Intel, said the company would have to miss the first quarter "pretty bad" in order to come in at Osha's estimate of $1.41 a share.
As for Thursday's semiconductor rally, Mark Edelstone, an analyst at Morgan Stanley Dean Witter, said it's a bear market rally but that the bear market will continue into the third quarter. Edelstone, too, agreed that estimates on some chip companies need to come down because of the inventory overhang and the slowing economy.
Merrill's Osha's wasn't the only analyst to issue a negative call on chip stocks Thursday. Salmon Smith Barney analyst Jonathan Joseph lowered his first-quarter revenue and per-share earnings estimates on Intel because of lower microprocessor unit shipments.
Even so, shares of Intel were recently trading up 3%, while AMD gained 10%, and Analog Devices climbed 4.5%. TI was recently up 5% and Linear was up 7%. The Philadelphia Semiconductor Index was recently trading 5.5% higher.
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From Fairchild web site, this PR:
FAIRCHILD SEMICONDUCTOR SEES Q4 2000 TRADE REVENUES UP SLIGHTLY FROM Q3, AND UP 36% FROM Q4 1999
January 8, 2001 -- South Portland, Maine -- Fairchild Semiconductor International (NYSE: FCS) today stated its fourth quarter 2000 sales were in the range of $468-470 million. Trade revenues were up 36% from fourth quarter 1999 and up slightly from third quarter 2000, while foundry revenues (revenues from manufacturing service agreements with other semiconductor vendors) dropped sequentially.
"We were encouraged that we were able to continue our strong year over year revenue growth, and also grow our trade revenues sequentially from third quarter, a result we believe outpaced many of our competitors," said Kirk Pond, chairman, president and CEO of Fairchild Semiconductor. "As we stated in our mid-quarter update, we took advantage of our multi-market business model with its diverse customer base, shifting our product mix to capitalize on immediate opportunities in December. While we didn’t achieve our goal of 3% quarterly sequential growth in total revenue, we did offset many of the backlog adjustments and cancellations that continued through the latter half of the fourth quarter.
"As we stated previously, we expect the first quarter of 2001 will be seasonally soft, as is normal for our industry. We now believe our first quarter 2001 sales will be about 5-8% below fourth quarter levels. We continue to believe we are in a reasonably short term inventory correction and expect our revenues to rebound slowly in the second quarter with revenue growth accelerating in the second half of 2001 and into 2002. We believe this outlook is in line with more recent industry forecasts for 2001," continued Pond.
fairchildsemi.com
Looks like Fairchild has bought several companies that have analog parts - Micro Linear is one.
Jim |
