Semiconductors Mixed, but Texas Instruments Rebounding

When Motorolla (MOT) warned of disappointing results, and then turned in revenues that were sequentially down 7.5% and down 19% from year earlier, it created some profound worries about the health of the semiconductor industry as a whole. [See my 7/19/2007 MOT summary] Now that more companies have reported, in particular Texas Instruments (TXN) on Monday, July 23rd, it seems that on the whole the industry is not in bad shape. The inventory correction from the second half of 2006 does seem to be over, although different companies are coming out of it with different timings.

A lot of detail about the industry can be gleaned from the TXN analyst conference held July 23. Texas Instruments revenues were also down, in this case 7%, from the year-earlier. But they bounced up 7% on a sequential basis and hit the midrange of management guidance. They said they turned away some unprofitable business at the low end of the cell phone market. Motorola, of course, makes cell phones; their failure to be able to market low end phones profitably really hurt them. Texas Instruments makes parts for the phones; that is working out better, at this moment. Orders were up 8% sequentially, inventories are in good shape, and 3G (high-end) mobile phone demand is growing. In order to meet the demands of the low-end market TI has brought out LoCosta (yep!) integrated cell phone chips that should start generating revenue in 2008.

Keep in mind that Microchip warned that it would only grow 2% sequentially, Xilinx was only up 1% sequentially, Altera was up 5%, AMD and Intel had mixed results. To me the overall picture is one of recovery with a real possibility of relative strength in Q3 due to the leanness of inventories. As individual companies win and lose contracts or consumer interest there will continue to be a lot of volatility against the general trend. This is particularly true of semiconductor chips used in the telecommunications sector. Right now analog chip design needs seem to be growing at a faster pace than digital; getting all these communications protocols right seems to be tougher than moving forward in digital processing.

In fact, it is time to start worrying about 2008. I believe that growth is going to be good due to continued rapid expansion in Asia and healthy expansion in Europe. The United States market is still a concern due to issues outside of semiconductors, notably housing, employment, and consumer willingness to spend.

More data:

Motorola investor relations page
Texas Instrument investor relations

Intel, AMD and Motorola: How Good Is Guidance?

This week earnings season begins in earnest. Among the semiconductor chip stocks I follow Intel (INTC), AMD (AMD) and Motorola (MOT) will be reporting second quarter results and holding analyst conferences.

Motorola already warned that things were not going to be good. Their July 11 Press Release estimated revenues at between $8.6 and $8.7 billion and GAAP earnings from continuing operations to be negative $0.02 to negative $0.04 per share. After Q1, at the Motorola April 18, 2007 analyst conference (See my MOT summary) management projected Q2 revenues to be about flat at $9.2 to $9.3 billion, with GAAP earnings negative $0.07 to $0.09 per share. Apparently missing on revenues actually saves them on lost earnings. Apparently cell phone handsets are not selling well, and unlike Apple, there is not a healthy margin built in for Motorola. Management will be clarifying all this (or maybe obscuring it) on Thursday, July 19, at 7:30 AM Eastern Time, which is at 4:30 AM here. I don't earn Motorola stock or cover it for a client, so I'll probably sleep in and catch the taped replay. I do own Marvell, which is about to compete in the high-end cell phone microcomputer market, which has me worried.

Intel reports Tuesday at 1:30 PM Pacific Time (See my Intel page for summaries). They have an easy year-over-year comparison because last year they were still at the losing end of their battle to retain market supremacy over AMD, retaining share with inferior products mainly through price cuts. Since then they brought out Core Duo processors and spent truckloads of money advertising at sites that review PC's, so their reputation and revenues have climbed. They were ahead of AMD in changing to smaller (in 2006, 65nm) technologies, so when they did succeed in imitating some of AMD's inovations, they managed both a cost and overall technology advantage. Tuesday will be about how well they did and what their road plan is for crushing AMD in the future.

AMD reports Thursday at 2:00 PM Pacific Time (See my AMD summaries page) and management will doubtless mix pain with optimism. AMD has actually done well these last 5 years, but comparisons with 2006 are going to be very bad. In addition to Intel finally making some decent processors, in 2006 AMD bought graphics processor maker ATI, which was failing to keep up with rival NVIDIA. The costs of this acquisition are still showing up and everyone believes AMD has lost market share to Intel while having to sell processors at unhealthy margins. The only good news for Q2 is if the distribution problems we saw in Q1 got fixed. If they did, and if the newest Opteron technology is really going to ship in Q3, the stock may move up on optimism about the future. I own AMD stock and after calling things right in 2003 to early 2006, was overly optimistic this last year. So I am not expecting much at this point.

On the software side we will also hear from Yahoo (YHOO) on Tuesday, then Google (GOOG) and Microsoft (Microsoft) on Thursday.

More data:

Mototola Investor relations page
Intel Investor relations page
AMD Investor relations page