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Chip business slowing down

Turbulent international economic considerations likely will flatten revenue and earnings for semiconductor manufacturers in the quarter just ended and in the current period as well.

Turbulent international economic considerations, among other factors, likely will flatten revenue and earnings for semiconductor manufacturers in the quarter just ended and in the current period as well.

Currency shocks in Asia have slowed PC purchasing in that once hot market, while sales in Europe have remained moribund. As a result, semiconductor sales have fallen off the growth rates they exhibited earlier in the year. A recent report from the Semiconductor Industry Association pointed out that worldwide shipments of semiconductors stayed flat in July and August.

Intel (INTC) is expected to post earnings of 91 cents a share for its third quarter, according to a consensus of analysts in a First Call poll. This represents a 23 percent increase over earnings of 74 cents a share for the same quarter a year ago. Earnings will be released on October 14.

Analysts estimates for this quarter
Company Estimate
per share
54 cents* Q3 Oct. 6
91 cents Q3 Oct. 14
Semiconductor (NSM)
44 cents Q2 Dec. (TBA)
Advanced Micro Devices
-12 cents Q3 Oct. 7
Source: First Call
*Note: actual price, not estimated

Sequentially, however, earnings are flat. Last quarter, Intel reported earnings of 92 cents a share on $6 billion in sales, which was below expectations due to product transitions and weak demand in Europe. For the first quarter, Intel reported earnings of $2.20 a share on revenue of $6.4 billion.

Close-out sales on classic Pentium chips, which were heavily discounted during the summer, also have helped to depress revenue growth. Unit sales for the quarter came to approximately 21.7 million, an 18 percent increase over the June quarter and an 8 percent increase over the March quarter, according to Ashok Kumar, an analyst at Southcoast Capital. By revenue, however, microprocessors are 5 percent below estimates, up only 2 percent over the previous quarter.

Further discounting of the Pentium chip likely will occur during the fourth quarter, according to Kumar. "We expect [processor] revenues to grow 10 percent sequentially in the December quarter, significantly below the 23 percent sequential growth in the December quarter of last year," he said in a report.

Meanwhile, poor yields on the K6 processor are expected to result in a loss of 28 cents a share for Advanced Micro Devices (AMD). The company had planned to produce between 1.2 million and 1.5 million K6 chips, but produced only a million. Much of the shortfall, moreover, came on the 233-MHz K6, the company's high-end chip that is supposed to compete against Intel's main processor line.

The shortfall is having repercussions beyond the current revenue picture for the quarter, said observers. AMD is not producing a large enough amount of chips to make switching to the platform attractive to computer vendors, and the chips the company is producing are performing at lower speeds than Intel's high-grade chips.

AMD reports tomorrow, and has made two separate announcements on their expected losses for the quarter, a move that has caused the majority of First Call analysts to readjust downward their predictions for the quarter.

"I've seen this happen a couple of times," Charles Boucher, a semiconductor analyst with UBS Securities, told CNET last week. "If you pre-announce twice in a short period of time, it usually means that your business is melting down in real time. Either that or they just aren't in control."

"They are not able to capitalize on their opportunity to take market share." he added.

In contrast to its competitors, National Semiconductor (NSM) is expected to report earnings of 30 cents a share for its second fiscal quarter, which will end in November. Last quarter, National posted earnings of $70.1 million, a surprising surge led by a 40 percent increase in analog and communication chip sales. Earnings came to 45 cents a share, beating estimates of 36 cents a share.

National purchased Cyrix last quarter.