Chip stocks have the blues

Shares of semiconductor firms Atmel (ATML) and Microchip Technology (MCHP) saw double-digit drops in morning trading today, while National Semiconductor (NSM) failed to get a big bang for posting better-than-expected quarterly earnings.

Analysts explain that a series of events led to the stocks feeling a bit blue.

Atmel, a supplier of high-performance memory and logic circuits, attributed the first-quarter outlook to the recent strengthening of the dollar, pricing pressure in its nonvolatile business, and delays in the qualification of its new Flash products.

"The flash memory market is very competitive, and it is [Atmel's] bread and butter," said S&P Equity Group analyst Stephen Madonna. He added that company results will be affected by its trouble in rolling out new products and a strong dollar.

Atmel dropped 15 percent in today due to a less-than-favorable preliminary earnings announcement. The stock fell 4-3/4 points in trading to close at 26-3/4.

The company expects revenues for its March 31 quarter to drop as much as ten percent than the $281.1 million in revenues reported for the fourth quarter of 1996.

Madonna explained that when memory prices fall, Atmel is hit significantly harder than companies like Intel, which also makes flash memory because it is its core revenue driver.

"[Amtel] doesn't have other products to take up the slack," he added.

Microchip Technology, a manufacturer of a variety of VLSI CMOS semiconductor components, also saw its stock drop. Shares closed down 6-3/8, or 17.9 percent, to close at 29-1/4.

One analyst, who declined to be identified, attributed the sell-off to an earnings cut by Robertson, Stephens & Company analyst Dan Niles, who he said lowered his estimates to 1.40 a share from 1.46.

The analyst said it may have been too reckless a cut. "To whack a stock six bucks is a bit too much," he said, adding that Microchip is a "good company and its microcontroler business is doing well."

Another analyst speculated that it could be more than an earnings-per-share cut that impacted the company's stock. Olde Discount's Justin Burgin explained that Microchip was wrongfully lumped into an article in a Bloomberg report that may have also impacted the stock drop.

According to Burgin, the article said that EEPROM microchip pricing is taking a fall which will impact producers.

"They get maybe a third of revenues from memory with less than five percent coming from EEPROM," said Burgin.

Meanwhile, National Semiconductor, which reported better than expected earnings yesterday, saw its stock drop 7/8 of a point, or 2.89 percent, to close at 29-3/8.

National reported net earnings of $42.8 million yesterday, or 30 cents a share, for the period ending February 23. That compared with profits of $23 million or 17 cents a share for the same period a year ago.

Wall Street had expected the company to report earnings of 23 cents, according to First Call.