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Analysts take it easy on Fairchild Semiconductor

Despite a revenue warning, the company's fourth-quarter prospects are greeted with cautious optimism by analysts.

    Despite a revenue warning, Fairchild Semiconductor's fourth-quarter prospects were greeted with cautious optimism by analysts on Monday.

    After Friday's market close, the company joined the rest of the semiconductor sector by warning of a revenue shortfall for both the fourth quarter of 2000 and first quarter of 2001. Shares in the company slid about 2 percent, dropping 25 cents to $14.75 in morning trading.

    The stock was downgraded by CIBC Oppenheimer, which cut the company from "strong buy" to "buy." Other analysts were more forgiving.

    While Deutsche Banc Alex Brown and Robertson Stevens lowered estimates, both brokerages maintained their respective ratings and felt that much of the bad news has already been priced into the stock's value.

    On the bearish side, analyst Quinn Bolton at CIBC Oppenheimer cut Fairchild's rating and lowered estimates for the fourth quarter of 2000, fiscal 2001 and fiscal 2002 while cutting the 12-month price target to $30.

    According to Bolton, the new numbers reflect the near-term uncertainty in the stock and in the semiconductor market in general.

    But the analyst said the stock is still trading at attractive multiples. If the current inventory correction is as short-lived as Fairchild believes, the stock rating could be bumped back up as early as March, Bolton said.

    Deutsche Banc Alex Brown analyst Erica Klauer was more optimistic. She lowered 2001 expectations but maintained a "strong buy" on the company.

    The analyst said the shortfall was already anticipated by the market and priced into the stock. Klauer believes that although fundamentals in the semiconductor industry are not expected to bottom before the next six to nine months, semiconductor share prices are approaching their cyclical lows for many companies.

    "While we expect shares of Fairchild to trade down based on this pre-release, we also believe that the company's valuation and the Street's earnings expectations are now near cyclical low levels. Consequently, we believe the worst of the price deterioration is behind us," the analyst said.

    Tore Svanberg at Robertson Stephens cut estimates but maintained a "buy" rating.

    Svanberg said Fairchild's shortfall was caused by overall end-market weakness affecting all companies in the sector and was not due to any company-specific issues.

    "In fact, we believe that as this inventory adjustment period passes, Fairchild will be very well positioned to capitalize on a second half 2001 recovery," the analyst said.