A good news/bad news scenario will likely play itself out this week in earnings announcements from semiconductor companies.
On the positive side, Intel is expected to report revenues in excess of the projections it released last month, according to some analysts. Accordingly, the company is expected tomorrow to report earnings of 80 cents per share or more.
LSI Logic, meanwhile, may announce layoffs when it reports its third-quarter results Wednesday morning. Sources close to the company and analysts have said that the firm could announce a layoff effort to streamline operations due to a slump in sales. LSI makes chips for communication devices and set-top boxes.
The upswing in Intel's business largely derives from steady sales in the PC industry for the third quarter. A PC glut in the first half suppressed sales. But that vanished by mid-summer, clearing the path for processor sales.
In September, Intel revised its revenue outlook and said sales would be 8 to 10 percent higher in the second quarter. Before that, the company predicted flat revenue.
Now analysts believe that revenues could jump 12 to 13 percent beyond the second-quarter results. Accordingly, predictions for earnings have risen as well.
One factor that is contributing to Intel's balance sheet this quarter is sales of 400-MHz and 450-MHz Pentium II chips, according to Vadim Zlotnikov, an analyst with Sanford Bernstein. Computer vendors have largely sold out their supplies of computers using these chips, and they are now back-ordered. These chips carry higher gross margins than slower, less expensive chips.
"They have had shortages on the 400s and 450s, which is why Intel is having such a strong quarter," Zlotnikov said.
"Earnings per share will be in the low to mid-80s," said Dan Niles, an analyst with BancBoston Robertson Stephens. Revenue would come in at around 12 to 13 percent higher than second-quarter revenues of $5.9 billion, he added.
Twenty-five analysts have raised their estimates upward in the past month in the wake of the company's September 11 announcement, according to First Call.
The consensus estimate for earnings is now 80 cents per share. Earlier, it was in the 70-cent range. Although that figure would be a decrease from a year ago, when Intel posted a profit of 88 cents per share, it will mark an improvement over earnings per share of 66 cents in the second quarter.
Ashok Kumar, an analyst with Piper Jaffray, pegged earnings at 84 cents per share. (Intel is an investor in CNET: The Computer Network, publisher of News.com.)
LSI, however, faces a different fate. In August, LSI warned investors that revenues would be 5 to 10 percent lower than the revenue for the second quarter while earnings per share would decline from 23 cents per share for the second quarter to the low to mid-teens. The company cited the slowdown in worldwide semiconductor demand as the cause of the decline.
"We expect supply and demand to come together in the next 12 months," chief executive Wilf Corrigan said in a statement.
A consensus of analysts pegged LSI's earnings per share at 13 cents, according to First Call.
"They will go [discuss] some long-term plans for the next four to six quarters" on the conference call, predicted Niles. "Part of that will relate to getting operations to be more profitable."
Niles stated that he did not have information on any exact layoff plans for LSI but said there is a likelihood that streamlining will occur. LSI has increased its research and administrative budgets in recent quarters, but has not experienced a revenue boost to justify the spending.
"They are not getting the revenue growth to support that," he said. "Expenses definitely have ballooned up." Niles predicted that the company would report 14 cents per share in earnings and revenues close to $300 million.
"The semiconductor industry is hurting in general," said Richard Belgard, an independent processor consultant.