Chip makers see light ahead
BY THERESE POLETTI
Mercury News
In this downtrodden market, any glimmer of hope is enough to spawn confidence.
The semiconductor industry got two pieces of relatively good news Thursday.
In its first mid-quarter conference call with investors, Intel said it stands by its earlier forecast for the second quarter, saying its PC processor business remains stable. And National Semiconductor, while predicting a loss for its fiscal first quarter, said communications customers are starting to place orders again.
Both announcements helped push the Philadelphia semiconductor stock index up nearly 8 percent.
Communications continues to be weak, however, and Intel, the world's largest chip maker, said its revenue, gross profit margin and expenses will be toward the lower end of its earlier forecast, due to weakness in its communications business.
``There are several sets of inventories that have to be worked off,'' said Intel Chief Financial Officer Andy Bryant, on a conference call with analysts after the market closed. But he noted that Intel is ``sitting pretty comfortably'' with its processor business.
In April, Intel said that it expected its second-quarter revenue to be in the range of $6.2 billion to $6.8 billion. The company narrowed that range Thursday, saying it expects revenue to be slightly below the midpoint of that range.
Analysts had widely been expecting that Intel of Santa Clara would lower its forecast for the quarter, and they were surprised by the relative upbeat tone of the call. In after-hours trading, Intel's shares rose to $32.92. Shares rose $1.34, or 4 percent, to $31.16 Thursday, fueled in part by the positive comments by National, which reported its earnings while the stock market was open. National's shares jumped 11 percent, or $3.07, to $31.04 on the New York Stock Exchange on Thursday.
More upbeat tone
``If you look at how worried people were a week ago, I think they eased people's minds today,'' said Terry Ragsdale, a Goldman Sachs & Co. analyst. ``It clearly was upbeat. The best thing you can say is that April and May came in where Intel expected them to be, based on seasonal patterns.''
Some analysts said they were not making any changes to their second-quarter estimates for Intel, because they were already at the low end or below consensus estimates of 11 cents a share. Many also remained concerned about the price war heating up in the PC industry between Dell Computer, Compaq Computer and Gateway, which have all been furiously slashing prices amid sluggish sales.
``Remember, these guys don't sell to the customers, they sell to the guy who sells to the customers,'' said Dan Niles, a Lehman Brothers analyst, of Intel. ``We will have to wait and see. . . . You just now have HP saying things are worse than they thought. All I know is if Asia and Europe are getting worse, that is still a big chunk of Intel's revenues.''
Niles was referring to comments made by Palo Alto-based Hewlett-Packard, which told analysts Wednesday that it sees the current economic slowdown spreading overseas, most notably Asia and Latin America.
But Intel said it is still looking for a stronger second half, based on historical trends and the typically busy third and fourth quarters when consumers are buying PCs for the back-to-school season and the holidays.
National Semiconductor Chief Executive Brian Halla also offered a slight glimmer of hope for the downtrodden communications sector, but he also cautioned about the near-term future.
``There is an indication that the inventories are pretty close to being burned off,'' Halla said in an interview. ``A lot of these guys are just living hand to mouth.'' He said National is seeing some ``turns'' ordering, which means that some of its communications chip customers are ordering products that need to be shipped shortly. But he noted that no customer wants to be the first to begin to build up long-term communications chip inventories again. Among National's diverse customers are cell-phone handset makers and developers of communications gear.
First-quarter loss
National reported a fourth-quarter loss of $44.4 million, or 26 cents a share vs. a profit of $153.9 million, or 78 cents a year ago, including a charge for cost-cutting, an investment write-off and goodwill amortization. Revenue dropped to $401.2 million, down from revenue of $595.3 million a year ago.
Santa Clara-based National said it expects a loss in the first fiscal quarter of about 30 to 35 cents a share, due to under-utilization of its manufacturing capacity and a 15 percent to 20 percent drop in sales from the fiscal fourth quarter.
``The inventory correction in communications chips has at least another quarter to go,'' said Vadim Zlotnikov, a Sanford Bernstein analyst. ``It does tell you that the inventory correction is behind us in PCs.'' |
