Look out below for Altera (Nasdaq: ALTR) and competitors Thursday. After pre-announcing its fourth quarter results would be lower-than expected based on an inventory correction, analysts were bearing down on chip makers.
Altera's profit warning is based on an programmable logic device (PLD) inventory correction at contract equipment manufacturers (CEMs) and push-outs from digital subscriber line (DSL) manufacturers that occurred during the month of November. Eight other stocks were expected to suffer in association with Altera's trouble, according to analysts' reports.
Here's a look at the fallout:
Merrill Lynch downgraded the stock from "near-term accumulate," to "near term neutral," but maintained a long-term buy rating.
"Due to what we believe is a slowdown in mainstream product revenue growth for (Altera) and an accumulation of low- and mid-range PLDs in the channel, we are lowering our 2000 and 2001 (earnings) estimates from $1.02 to $0.97 and $1.50 to $1.31 respectively," said analyst C. Danely.
Analyst Hans Mosesmann at Prudential Securities also cut his estimates for Altera Thursday, lowering his price target to $38 from $45. and reiterated an "accumulate" rating.
Erika Klauer at Deutsche Banc Alex Brown reduced earnings and revenue estimates for the fourth quarter and fiscal 2000, and lowered her rating to "2-buy."
Rick Billy at SG Cowen lowered estimates for Altera and its competitors. "Without any specific guidance from any management, we are lowering our Q4 and Q1 revenue growth estimate for a group of 'Altera-like' companies," including Xilinx, Lattice Semiconductor (Nasdaq: LSCC), Integrated Silicon Solution (Nasdaq: ISSI) and Integrated Device Technology (Nasdaq: IDTI), the analyst said.
"Although we believe most of Altera's problem is the continued loss of share to Xilinx, we believe the inventory correction at CEMs poses a risk to our estimates for (Xilinx), Danely said.
He therefore lowered Merrill Lynch's intermediate- term rating on Xilinx from "buy" to "accumulate," and lowered the stock's 12-month price target from $115 to $50 a share.
Danely added that Xilinx should still meet estimates for the third quarter of 2001, but "the sudden and unexpected PLD inventory correction" puts his fourth quarter sequential revenue growth estimate of 12.2 percent "at risk."
Xilinx was also downgraded to ``buy'' from ``strong buy'' by analyst Sudeep Balain at Chase H&Q. The target price was cut to $55 from $105 per share.
Analyst Mark L Edelstone at Morgan Stanley Dean Witter reiterated a ``strong buy'' rating and 12-month target price is $100.00 per share.
Analyst Tim Mahon at Credit Suisse First Boston. downgraded the stock to "buy'' from "strong buy.''
Mark L Edelstone at Morgan Stanley Dean Witter and Hans C Mosesmann at Prudential Securities both reiterated a `strong buy'' -- their 12-month target prices were $65 per share and $54 a share, respecively.
Analyst Vincent A Benedetti at Gruntal & Co. downgraded shares to short-term "market perform" from short-term ``outperform." The long-term rating remained ''outperform.'' The short-term and long-term price targets were cut to $40 and $60 from $65 and $80, respectively.
Integrated Device was downgraded to ``buy'' from ``strong buy'' by Sudeep Balain at Chase H&Q. The target price was cut to $70 from $125 per share.
Fairchild Semiconductor also got a downgrade from Danely. He cut his "immediate-term" raring from "accumulate" to "neutral" and maintained a "long-term buy." Danely said inventory corrections will last longer than one quarter due to continued soft demand in December and slow seasonal demand in the first quarter of 2001.
On Wednesday, Fairchild gave an update on its business conditions through the first two months of the fourth quarter. It said the quarter is on track for revenues of $490 million, but that due to an inventory correction it was lowering its first quarter revenue growth estimates to 20 percent, below previous estimates of 22 percent.
Due to this slowdown in bookings, Danely lowered his firm's 2001 revenue and earnings estimates from $2.20 billion and $3.05 a share to $2.12 billion and $2.94 a share, respectively.
"Our channel checks indicate that Cypress experienced a slowdown in order rates and turns from the CEM and PC end markets during November," Danely wrote. He lowered fourth quarter and calendar first quarter revenue and earnings estimates accordingly, and downgraded "intermediate-term" and "long-term ratings" to "accumulate" from "buy."
"This still represents significant price appreciation," Danely added. Cypress "remains an excellent value."
Merrill Lynch dropped its immediate-term rating was also dropped -- from "accumulate" to "neutral."
Intersil, along with Fairchild, is particularly vulnerable to decreased bookings, and both companies will be challenged to meet estimates for their fourth and first quarters, Danely noted. "Still, our view for 2001 is much more benign than the last downturn," said Danely.