Analysts downgrade Silicon Image as the stock edges toward its 52-week low, a day after the company warned that fourth-quarter revenue and earnings will be lower than Wall Street had anticipated.
The Cupertino, Calif.-based company, which designs communications chips, announced Wednesday that revenue will be $13 million and earnings per share will be flat. The company had previously estimated revenue of $16.1 million and earnings per share of 1 cent.
The so-called fabless--or fabrication-plant free--semiconductor company blamed the shortfall on slowing PC demand, a buildup of inventory at distributors and sluggish demand for flat panels. Silicon Image will announce its official fourth-quarter results Jan. 25.
Silicon Image stock sank to $6.06 in midday trading, down 30 percent since the closing price Wednesday. Nearing its 52-week low of $5 per share, the stock is down 83 percent since the first of the year.
In a news release distributed after the close of trading Wednesday, Silicon Image predicted 2001 revenue growth of at least 60 percent. But analysts took a far more bearish stance.
Lehman Brothers analyst Arnab Chanda predicted the company will have 2001 revenue growth of only 30 percent--and he believes that may not be conservative enough for the first quarter of 2001. He slashed his 2001 earnings-per-share estimate from 7 cents to 2 cents and cut his rating from "buy" to "outperform."
"Silicon Image has a vast majority of their current revenues derived from displays for the PC market," Chanda wrote in a research note issued Thursday. "The macro-level PC environment has deteriorated over the past few months...We do not believe that the resumption of historical growth in the display market is likely until" the second quarter of 2001.
On Thursday, Dain Rauscher Wessels downgraded Silicon Image to "neutral," while Prudential Securities cut it to "hold." C.E. Unterberg Towbin cut it from "strong buy" to "buy." Credit Suisse First Boston reiterated its "buy" rating.
Silicon Image also announced Wednesday a voluntary stock option exchange program in which option holders may swap existing stock options for new options with lower strike prices. The new options will have an exercise price of the company's closing price on the Nasdaq on Dec. 22, and they will vest over four years.
The program is not open to directors and executives of the company, including the chief executive officer, chief operational officer and chief financial officer.
Wall Street is not likely to look favorably on the options exchange. In general, financial institutions frown on companies that reprice options or otherwise attempt to alter the value of employees' option packages because such programs often dilute the stock and require accounting charges.