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Telecom chipmakers slide on warnings

TranSwitch shares tumble nearly 17 percent after the communications chipmaker joins Broadcom in issuing a profit warning for the current quarter.

    TranSwitch shares tumbled nearly 17 percent Friday after the communications chipmaker joined Broadcom this week in issuing a profit warning for the current quarter.

    TranSwitch, which warned Thursday that it would post a loss between 10 cents and 12 cents a share in its second quarter, watched its shares fall $2.46 to $12.40 after several analysts downgraded the stock and lowered their sales and earnings estimates.

    First Call consensus expected the company to report a profit of 5 cents a share.

    TranSwitch executives said sluggish sales of telecommunications equipment in North America has spread to Europe and Asia. It expects to record sales between $10 million and $12 million, well below the consensus estimate of $31.2 million.

    On Friday, Pacific Crest Securities cut the stock to a "market perform" rating from a "buy" while Dain Rauscher Wessels downgraded it to a "neutral" recommendation from a "strong buy."

    Goldman Sachs cut its fiscal 2001 and 2002 estimates from a loss of 16 cents and 11 cents a share to a loss of 22 cents and 27 cents a share, respectively.

    Robertson Stephens analyst Paul Johnson cut his fiscal 2001 and 2002 targets from a profit of 27 cents and 34 cents a share to a loss of 29 cents and 48 cents a share, repectively, warning that profit margins and excess inventory will hamper earnings for the foreseeable future.

    "The company has been accepting order cancellations and push-outs from its customers in order to manage the level of inventory throughout the supply chain," Johnson wrote in a research note.

    Broadcom, which also warned it would miss estimates this quarter, fell $3.45 to $36.79 despite an upgrade from Prudential Securities.

    After the warning announcement, Broadcom shares rose $4.67, or 13 percent, to $40.24 Thursday on news that the company expects no further revenue declines this year.

    Analyst John Barton upgraded Broadcom to a "buy" rating from a "hold," even though the company told investors its second-quarter sales will fall between 32 percent and 35 percent from the $318 million it recorded in the first quarter.

    "Although visibility remains poor, we believe the company is starting to experience an uptick in orders from the cable and LAN markets," Barton wrote in a research note. "We believe Broadcom has many strong catalysts to carry it through 2001 and return to rapid revenue growth in 2002."

    Goldman Sachs' Nathaniel Cohn cut Broadcom's fiscal 2001 estimate to a loss of 30 cents a share from a loss of 20 cents a share and its fiscal 2002 target from a profit of 20 cents to a profit of 10 cents a share.