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Chip Makers Struggle With Economic Outlook
A tight financial environment is affecting all industries around the globe. It will be harder to get both personal and business loans, so buying high-ticket items for individuals or for growing a business will be more difficult. Expansion and production will need to slow as the demand drops for non-essential products and services. Circuit-board producers and chip manufacturers, which sell to almost every sector, might be feeling these effects as the holiday season approaches.
Texas Instruments (NYSE:TXN)
This company designs, manufactures and sells a wide range of semiconductor devices used in communication products, home appliances, computers, automobiles and industrial equipment. The company's earnings outlook has not declined as sharply as one might expect with the worsening global economic picture. Over the past 90 days, only two analysts have decreased their expectations for the company's December earnings release. The average estimate for the next quarter ending in December now stands at 43 cents per share compared to 51 cents predicted 90 days ago. (Speaking of analysts, check out Analyst Forecasts Spell Disaster For Some Stocks.)
The industry is expected to fare much worse. Citi Investment Research analyst Glen Yeung sees the potential for revenue shortfalls in the current quarter due to slowing demand from end users worldwide. According to Yahoo Finance, analysts estimate expected sales for the quarter ending in December to drop for Texas Instruments by around 5%, with yearly revenue numbers coming in slightly better at a 3% decrease compared to the last fiscal year.
Flextronics International (Nasdaq:FLEX)
This company is mainly a manufacturer of printed circuit boards but also is involved in design services for clients in mobile communications, computers, home electronics, industrial equipment and semiconductors. The company's outlook is expected to be less merry going into the final quarter of 2008 based on recent U.S. Department of Labor statistics, which show jobs were being shed in the United States by telecommunications-related employers in September. At one time the technology sector was expected to survive the global credit crisis, but now it's being considered just as vulnerable as other industries to the slowing growth of countries around the world. Computer and electronics manufacturers saw flat employee levels in September compared to an increase of 5,100 jobs in August.
KLA-Tencor Corp. (Nasdaq:KLAC)
This company designs, manufactures and sells process-control and yield-management products for semiconductor manufacturing companies worldwide. Barclays Capital recently downgraded KLAC to underweight due to earnings-estimate questions. At least three other downgrades have occurred since September 22 - the most recent being Banc of America's switch from Buy to Neutral on October 8. The company is faring poorly in the weak economy to a larger extent than Texas Instruments and Flextronics. (Looking for a good read? Check out Analyst Recommendations: Do Sell Ratings Exist?)
KLA-Tencor's earnings per share estimates have been downgraded for the current quarter from 55 cents 90 days ago to only 34 cents today, according to Yahoo Finance. Revenue estimates are also shrinking, showing a 25% reduction in expected sales compared to the same quarter last year. The stock is already down roughly 50% over the last 52 weeks, but it could see continued downward pressure due to the slowing demand for semiconductors.
Conclusion
Chip manufacturers and companies in related fields, like circuit-board producers and process-control device developers, are seeing worldwide demand slow down due to the credit crisis and a recessionary environment in many developed countries. An anticipated slow holiday season could mean additional loss of sales and earnings for companies like Texas Instruments, Flextronics and KLA-Tencor. Investors will continue to be skeptical of these companies' earnings until a sign of increasing demand in the industry becomes apparent.
Texas Instruments (NYSE:TXN)
This company designs, manufactures and sells a wide range of semiconductor devices used in communication products, home appliances, computers, automobiles and industrial equipment. The company's earnings outlook has not declined as sharply as one might expect with the worsening global economic picture. Over the past 90 days, only two analysts have decreased their expectations for the company's December earnings release. The average estimate for the next quarter ending in December now stands at 43 cents per share compared to 51 cents predicted 90 days ago. (Speaking of analysts, check out Analyst Forecasts Spell Disaster For Some Stocks.)
The industry is expected to fare much worse. Citi Investment Research analyst Glen Yeung sees the potential for revenue shortfalls in the current quarter due to slowing demand from end users worldwide. According to Yahoo Finance, analysts estimate expected sales for the quarter ending in December to drop for Texas Instruments by around 5%, with yearly revenue numbers coming in slightly better at a 3% decrease compared to the last fiscal year.
This company is mainly a manufacturer of printed circuit boards but also is involved in design services for clients in mobile communications, computers, home electronics, industrial equipment and semiconductors. The company's outlook is expected to be less merry going into the final quarter of 2008 based on recent U.S. Department of Labor statistics, which show jobs were being shed in the United States by telecommunications-related employers in September. At one time the technology sector was expected to survive the global credit crisis, but now it's being considered just as vulnerable as other industries to the slowing growth of countries around the world. Computer and electronics manufacturers saw flat employee levels in September compared to an increase of 5,100 jobs in August.
KLA-Tencor Corp. (Nasdaq:KLAC)
This company designs, manufactures and sells process-control and yield-management products for semiconductor manufacturing companies worldwide. Barclays Capital recently downgraded KLAC to underweight due to earnings-estimate questions. At least three other downgrades have occurred since September 22 - the most recent being Banc of America's switch from Buy to Neutral on October 8. The company is faring poorly in the weak economy to a larger extent than Texas Instruments and Flextronics. (Looking for a good read? Check out Analyst Recommendations: Do Sell Ratings Exist?)
KLA-Tencor's earnings per share estimates have been downgraded for the current quarter from 55 cents 90 days ago to only 34 cents today, according to Yahoo Finance. Revenue estimates are also shrinking, showing a 25% reduction in expected sales compared to the same quarter last year. The stock is already down roughly 50% over the last 52 weeks, but it could see continued downward pressure due to the slowing demand for semiconductors.
Conclusion
Chip manufacturers and companies in related fields, like circuit-board producers and process-control device developers, are seeing worldwide demand slow down due to the credit crisis and a recessionary environment in many developed countries. An anticipated slow holiday season could mean additional loss of sales and earnings for companies like Texas Instruments, Flextronics and KLA-Tencor. Investors will continue to be skeptical of these companies' earnings until a sign of increasing demand in the industry becomes apparent.
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