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EARNINGS PREVIEW:US Chip Makers Face Wavering Appetite,Changing Tastes

Date : 07/11/2012 @ 9:59AM
Source : Dow Jones News
Stock : Microsoft Corp. (MM) (MSFT)
Quote : 46.12  1.1 (2.44%) @ 8:10PM
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EARNINGS PREVIEW:US Chip Makers Face Wavering Appetite,Changing Tastes

Advanced Micro (NYSE:AMD)
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    By Kristin Jones 
 

TAKING THE PULSE: Semiconductor demand has been recovering slowly this year after a rocky 2011, when natural disasters in Thailand and Japan disrupted the hard drive industry, compounding the woes of a shaky economy.

But worries have emerged that a global economic slowdown could hobble spending. On Monday, Advanced Micro Devices Inc. (AMD) sharply lowered its revenue expectations on weakness in China and Europe. Some analysts read the news as the latest indication that PC sales are slowing across the board. A change in consumer taste has contributed to that trend. In the U.S. and other markets, people are relying more heavily on smartphones and tablets for tasks once reserved for laptops and desktops; as a result, they're waiting longer to replace their PCs. Companies that supply chips for Apple Inc. (AAPL) iPads and iPhones or Samsung Electronics Co.'s (005930.SE, SSNHY) popular smartphones have been the primary beneficiaries of the shift.

A rise in cloud computing has offered new opportunities to stalwarts like Intel Corp. (INTC), which has seen its data-storage business grow. Meanwhile, a battle for patents in the tech field has driven several major chip companies to make recent deals to grow or shelter their intellectual property holdings.

 
    COMPANIES TO WATCH: 
 
    Intel Corp. (INTC) - reports July 17 
 

Wall Street Expectations: Analysts polled by Thomson Reuters expect a second-quarter profit of 52 cents a share on revenue of $13.57 billion. A year earlier, Intel reported a profit of 54 cents a share, or 59 cents excluding acquisition costs and other items, on revenue of $13.03 billion.

Key Issues: Intel, whose microprocessors supply the calculating power for most of the world's PCs, has been grappling with a rise in smartphones and tablets that don't use its technologies. Over the past year, Intel's top and bottom lines have largely demonstrated resilience, however, buoyed by sales of PCs in emerging markets like China and Brazil, and by strength in the company's data-center business amid a rise in cloud computing. At the same time, Intel has been trying to revitalize demand for laptops in mature markets with the promotion of very thin, lightweight laptops called Ultrabooks. The company is also making a push into the mobile market, in part with a drive to incorporate its Atom chips into smartphones. Joining the scrum for patents, Intel agreed to pay $375 million in cash for a portion of wireless technology company InterDigital Inc.'s (IDCC) patent portfolio.

 
    Qualcomm Inc. (QCOM) - reports July 18 
 

Wall Street Expectations: The Street sees fiscal third-quarter earnings of 86 cents a share on revenue of $4.68 billion. Qualcomm reported year-earlier income of 61 cents a share, or 73 cents excluding acquisition-related costs, stock compensation and other items, on revenue of $3.62 billion.

Key Issues: Qualcomm, which helped popularize a technology used in many cellphones called code-division multiple access, or CDMA, has been one of the biggest beneficiaries of rising demand for smartphones and other mobile devices. But Qualcomm has warned that fiscal third-quarter growth likely was affected by constraints on the supply of chips based on a new manufacturing process; the company relies heavily on the limited services of Taiwan Semiconductor Manufacturing Co. (TSM, 2330.TW), and is boosting spending to help other manufacturing companies produce the same chips. Supply issues, which are driving some of the company's customers to seek out alternatives, are expected to limit revenue upside through the end of September. Qualcomm makes much of its profit by licensing patents based on its 3G technology and has been benefiting from consumers' move to more advanced devices, as well as increased adoption in emerging markets. In June, the company unveiled plans to form a unit to separate its chip business from its licensing operations, in an effort to shelter its intellectual-property portfolio.

 
    Advanced Micro Devices Inc. (AMD) - reports July 19 
 

Wall Street Expectations: Analysts predict earnings of 10 cents a share on revenue of $1.49 billion. The company reported year-earlier earnings of 8 cents a share, or 9 cents excluding special items, on revenue of $1.57 billion.

Key Issues: AMD recently warned that second-quarter revenue will be dramatically lower than the company previously predicted, as smaller-than-expected sales in China and Europe hurt its equipment-manufacturer business. AMD competes against Intel to supply chips for PCs, and against Nvidia Corp. (NVDA) in graphic processors. Along with the impacts of slowing growth in the PC market and weak consumer demand, some analysts suspected the revenue drop reflects a loss in market share. The recent softness comes after two quarters in which revenue wavered and earnings were pressured by heavy charges. After encountering manufacturing problems last year, AMD restructured its relationship with Globalfoundries Inc., a company formed by the spinoff of its manufacturing operations. The restructuring, while tied to expenses, is expected to give AMD more freedom to make some of its products elsewhere. The company is also looking to strengthen its cloud computing capabilities, and completed its $334 million purchase of server technology company SeaMicro earlier this year.

 
    Texas Instruments Inc. (TXN) - reports July 23 
 

Wall Street Expectations: Consensus estimates call for earnings of 41 cents a share, with revenue of $3.35 billion. A year earlier, Texas Instruments reported per-share earnings of 56 cents a share on revenue of $3.46 billion.

Key Issues: Texas Instruments makes chips used in everything from cellphones to industrial equipment. The company has reported four straight quarters of declining profits amid persistently soft demand. The company, a longtime supplier of chips to Nokia Corp. (NOK, NOK1V.HE), said in June that it expects its sales in the wireless segment to continue to decline. Still, other areas showed signs of a rebound. Last year's purchase of National Semiconductor was geared toward helping results in the market for analog chips, which convert real-world signals to digital. Texas Instruments predicted last month that the analog and embedded chip businesses would post solid sequential revenue growth in the second quarter, and said that sales of communications infrastructure were strong.

 
    Broadcom Corp. (BRCM) - reports July 24 
 

Wall Street Expectations: The Street projects income of 67 cents a share on revenue of $1.95 billion. A year earlier, Broadcom reported earnings of 31 cents a share, or 72 cents excluding acquisition costs and other special items, on revenue of $1.8 billion.

Key Issues: Broadcom provides chips for set-top boxes, networking and smartphones. Its major customers include highfliers Apple and Samsung and stragglers like Nokia. Lately, growing sales of its more-advanced 3G wireless chips have been partially offset by declining revenue from its older 2G chips--a trend expected to be reflected in its results. Broadcom has lately sought to expand into networking, as seen in its February acquisition of NetLogic Microsystems Inc., and in May predicted that its networking and broadband segment sales would rise sequentially in the second quarter. Earlier this month, Broadcom also reached a partial resolution to a long-simmering fight with Emulex Corp. (ELX) over networking technology licenses. Under the agreement, Emulex will pay Broadcom $58 million in cash for certain patent licenses.

(The Thomson Reuters estimates and year-earlier earnings may not be comparable due to one-time items and other adjustments.)

Write to Kristin Jones at kristin.jones@dowjones.com



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