Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Xilinx (XLNX) -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (2873)	11/7/2002 5:11:48 PM
From: Sam Citron	Read Replies (1) \| Respond to of 3291

Comm Chipmakers See Their Horizons Shrink, Too By K.C. Swanson Staff Reporter TheStreet.com 11/07/2002 04:45 PM EST ...Yesterday, Cisco said its customers had grown more cautious over the past three months, and it predicted sales for the quarter under way would range from flat to down. That's not a huge surprise, in light of low expectations across techland. But nor does it offer chip investors any pretext for optimism. A number of its more diversified suppliers already have issued similarly humdrum guidance: Broadcom expects fourth-quarter revenues to stay flattish; Xilinx and Altera likewise anticipate sales in that range, give or take a little. Chipmakers with higher exposure to the troubled equipment market have been harder hit, with AMCC forecasting a quarterly revenue slide of 17% to 33%, and PMCS looking for a sequential drop of 10% to 15%. Making matters worse, Cisco, which already has been squeezing suppliers for discounts, looks set to ratchet up the pressure. As it stands, about half of its gross margin improvements over the past two quarters came from declines in component prices. Going forward, Cisco management said it aims to buy chips from a smaller pool of suppliers, affording the company price breaks based on volume purchases. In another bid to cut costs, it will develop more chips internally. "If you look through most of the communications-related chip companies, it's hard to find companies that don't have Cisco in their top one to three customers' list," says Cody Acree, an analyst for Legg Mason. "If they want to keep Cisco as a customer and it wants to put pressure on them, it's difficult not to make concessions. They definitely have leverage." Taken together, the outlook for communications chipmakers in 2003 could be dimming. Given continuing revenue pressure at the likes of Cisco, cuts in profit forecasts for chip suppliers may be on the way, notes Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray. "With weak end markets and lack of any tangible improvements in business conditions, the comm IC vendors face questionable profitability prospects," he wrote in a note. Meanwhile, though the overall outlook for comm chips isn't encouraging, Cisco made some comments that suggest possible upside for two of its suppliers, Merrill analyst Mark Lipacis noted. Cisco said it expects switching revenues to grow faster than the router market, which could offer incremental benefit to Broadcom and Marvell. The news could be marginally negative for PMCS, which has a relatively higher exposure to routers. thestreet.com