Finding strength amid chip weakness
Wall Street to zone in on pricing, inventory, cost cuts
By Janet Haney, CBS.MarketWatch.com
Last Update: 3:30 AM ET Apr 13, 2001
SILICON VALLEY, Calif. (CBS.MW) - The volatile semiconductor sector will release the bulk of its quarterly results next week, shedding light on one of the darkest periods in the chip industry.
Investors and analysts also need to know more about how these companies will handle any further economic weakness while remaining competitive in a price sensitive sector. Also see EarningsWatch.
"Most investors are seeing through the negative earnings and they're really looking selectively at valuation primarily and establishing positions on weakness in the hopes that you'll see a late '01 rebound," commented Jesse Soto, senior securities analyst at Highmark Capital Management in Los Angeles.
Slumping demand, production backlogs as well as inventory-laden shelves put extreme pressure on the overall chip sector during the first quarter, causing numerous companies to warn about lower-than-expected quarterly numbers. Some aggressively trimmed staff to cut back on costs and shuttered manufacturing facilities.
Few firms were immune to the braking U.S. economy. Advanced Micro Devices (AMD: news, msgs, alerts) was one of the minority within the Philadelphia Semiconductor Index ($SOX: news, msgs, alerts) that didn't warn of a business slowdown. Rival Intel (INTC: news, msgs, alerts) , however, said it would miss its first-quarter sales projection and cut 5,000 jobs to pare costs.
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The bad news showed up in the stock prices.
The Philly chip index, which marks the movement of 16 chip and chip equipment stocks, hit a low of 453.85 on April 4. As of April 12, the index has fallen 57 percent from its all-time high of 1,362.10 reached in March 2000.
"The concern we have is that most of these companies pre-announced in late February and early March and we believe business fundamentals further deteriorated through the end of the quarter," Credit Suisse First Boston analysts Tim Mahon, Scott Decker and Tyrone Lee said in a research note.
The CSFB analysts pointed out that the last few months of sales decline have been due in part to unit prices and said that three sequential quarters of average selling price erosion could happen if past history repeats itself.
Listening in
Here's a sample of the industry's biggest names that will release their quarterly results next week, along with the current estimates from First Call/Thomson Financial.
Intel: first quarter on April 17; EPS estimate of 15 cents a share, with sales of $6.58 billion; warned on March 8
Teradyne (TER: news, msgs, alerts) : first quarter on April 17; EPS estimate of 34 cents, with sales of $585.9 million; warned March 8; announced layoffs on March 20
Texas Instruments (TXN: news, msgs, alerts) : first quarter on April 17; EPS estimate of 16 cents, with sales of $2.13 billion; consolidated its Santa Cruz, Calif. operations on March 14, 600 people affected
Advanced Micro Devices: first quarter on April 18; EPS estimate of 33 cents, with sales of $1.13 billion
Altera (ALTR: news, msgs, alerts) : first quarter on April 18; EPS estimate of 16 cents a share, with sales of $301.68 million; warned on Feb. 27
KLA-Tencor (KLAC: news, msgs, alerts) : third quarter on April 18; EPS estimate of 44 cents, on sales of $462.88 million; warned on March 19
Lattice Semiconductor (LSCC: news, msgs, alerts) ; first quarter on April 19; EPS estimate of 25 cents, with sales of $108.65 million; warned on March 2
; first quarter on April 19; EPS estimate of 25 cents, with sales of $108.65 million; warned on March 2
Xilinx (XLNX: news, msgs, alerts) : fourth quarter on April 19; EPS estimate of 22 cents a share, with sales of $388.35 million; warned on March 5
: fourth quarter on April 19; EPS estimate of 22 cents a share, with sales of $388.35 million; warned on March 5
Transmeta (TMTA: news, msgs, alerts) ; first quarter on April 19; EPS estimate of a loss of 11 cents
; first quarter on April 19; EPS estimate of a loss of 11 cents
Novellus Systems (NVLS: news, msgs, alerts) and LSI Logic (LSI: news, msgs, alerts) both will release their first-quarter results the following week, with Novellus weighing in on April 23 and LSI on April 24.
Janet Haney is a reporter for CBS.MarketWatch.com in San Francisco.
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