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Rough sledding for chipmakers

It's turning into a rough week for semiconductor companies, as Vitesse and Xilinx both issue warnings citing an overall industry downturn.

It's turning into a rough week for semiconductor companies, especially ones focused on the communications market.

Vitesse and Xilinx both issued warnings for their current quarters late Tuesday night. The companies cited an overall industry downturn for their shortfalls. That gloomy news came after a warning from Applied Micro Circuits, which cited weak demand.

All three companies make products for telecommunications equipment manufacturers. The problems stem from a general slowdown in spending by telecom companies. Their cutbacks have hurt telecom equipment vendors such as Lucent Technologies and Cisco Systems, which in turn hurt chipmakers.

"Can you say 'yet another comms (communications) casualty'? Yes you can," Goldman Sachs analyst Terry Ragsdale wrote in a research note. "Comms demand remains anemic, and inventory remains a problem throughout the supply chain."

And things will probably get worse before they get better; most telecom analysts aren't predicting a return to spending by the carriers until at least next year.

•  Xilinx's warning comes just three weeks after the company reiterated its first-quarter outlook. It said then that order cancellations and delays had slowed, but apparently, it spoke too soon. On Tuesday, the company said that it now expects first-quarter revenue to drop 32 percent from the $407 million it reported in the fourth quarter. Gross margins should be around 52 percent. Shares were off $3.93 to $39.93 by market close.

• Vitesse said Tuesday that it expects third-quarter revenue of around $60 million and a pro forma loss of about 6 cents per share. The company had predicted a 3 cent to 7 cent per-share pro forma profit, and revenue of between $90 million and $110 million. Executives said, however, that recent layoffs would be adequate to solve staffing problems, and they didn't anticipate any more cuts. The company said it might write off excess and obsolete inventories in the next few weeks. Vitesse shares rose 84 cents to $17.41 by market close.

• Applied Micro said Monday that it now expects first-quarter revenue between $40 million and $45 million and a pro forma net loss of between 4 cents and 6 cents a share. Applied Micro was up 22 cents to $14.95 by market close.