3 Chip Makers Issue Profit Warnings, But Their Stocks Gain
The semiconductor sector, suffering from a supply glut and weaker demand for computers and electronics, began the week with three more profit warnings and a report that showed sales of microchips weakened further in January.
Shares of most semiconductor makers nevertheless rose in Monday afternoon trading as investors, who had already been bracing for bad news, seemed to breathe a sigh of relief that the numbers weren’t worse.
“The stock market has obviously expected these pre-announcements,” said Dan Scovel, a semiconductor analyst with Needham & Co. “We’re in a weak market.”
Cypress Semiconductor (ticker symbol: CY), citing order cancellations and a drop in unit volume, said its first-quarter revenue would fall more than it had expected. The San Jose-based company now sees the quarter’s revenue dropping 15% from the fourth quarter, far more than the 4% to 9% decline it had previously forecast.
LSI Logic Corp. (LSI), a Milpitas, Calif.-based maker of semiconductors for communications and data storage, said its first-quarter revenue would be 30% lower than in the previous quarter, versus an earlier forecast of a 12% decline.
“The sharp decline in U.S. customer end-demand, coupled with a widespread inventory correction in the supply chain, has prompted us to lower our guidance for the first quarter,” said Wilfred Corrigan, LSI chairman and chief executive.
Camarillo-based Vitesse Semiconductor (VTSS) warned investors in a predawn news release that it expects to post pro forma net income of 21 cents to 22 cents, off an earlier estimate of 26 cents to 27 cents.
Despite the news, Cypress shares rose 27 cents to $19.13 and LSI moved up 51 cents to $16.82 in New York Stock Exchange trading. On Nasdaq, shares of Vitesse rose $1.25 to $39.06.
The Philadelphia Stock Exchange semiconductor index jumped 5.2%.
Also Monday, a semiconductor trade group reported that worldwide sales of computer chips fell 5.7% in January from December.
It was the third consecutive monthly decline, Scovel said. “It’s not a surprise given the reports of weakness that we’ve seen, really, across the whole sector,” he said.
The January figures nevertheless fueled pessimism about the current state of the sector.
“Chip industry momentum collapsed in January,” Mark Fitzgerald, an analyst with Bank of America, wrote in a research note. “It is now approaching the levels reached in the summer of 1996, the worst decline in 10 years of tracking momentum.”
Meanwhile, Intel Corp. (INTC), the No. 1 maker of computer chips, said it cut prices of some processors by as much as 19% to clear inventory before introducing new chips. Intel shares rose $1.06 to close at $30.38.
The sales warnings came on the heels of Thursday’s pre-announcement by communications chip maker Applied Micro Circuits Corp. (AMCC), which said weakness among its own customers--including Nortel Networks Corp. (NT) and Cisco Systems Inc. (CSCO)--would hurt revenue in its fourth quarter.
Despite an uncertain U.S. economy and wavering consumer confidence, chip makers are cautiously predicting a more rosy second half of the year.
But it is the end markets--wireless devices, personal computers and telecommunication products--that ultimately hold the key to a rebound in semiconductor sales.
