A trio of earnings warnings from three technology bellwethers has served to accentuate the depth of the ongoing recession, the speed at which it has deteriorated and just how much further estimates could fall.
Applied Materials (Nasdaq:AMAT), Intel (Nasdaq:INTC) and National Semiconductor (NYSE:NSM) all cut guidance this week, and savvy investors should now start questioning the guidance of other tech industry heavyweights. Let's take a closer look at what's happening in the industry.
Grim Predictions From Applied Materials
Applied Materials, one of the largest semiconductor capital equipment companies, reported its fourth fiscal quarter earnings and issued revenue guidance for the first quarter of fiscal 2009 on Nov. 12. The company is calling for revenue to be down 25-30% and earnings to be from breakeven to 4 cents per share. The company also announced plans to fire 1,800 employees or 12% of its workforce.
CEO Michael Splinter gave what could only be called a dire view of the current environment. "The last six weeks of turmoil in the financial markets is unprecedented and the weakening global economy will have significant impact on all of Applied's businesses," Splinter said. "The markets for semiconductors and flat panel displays depend largely on consumer demand for growth."
Applied Materials does seem able to weather the recession well in a sense. The company had cash and short-term investments of about $2.1 billion, and long-term debt of about $201.6 million. (For more on what stocks to avoid in a downturn, read Recession-Proof Your Portfolio.)
Massive Cut From Intel
Industry heavyweight Intel also slashed its forward guidance this week by a shocking amount. The company now expects fourth quarter revenue to be $8.7-9.3 billion, down from the previous range of $10.1-10.9 billion. Gross margin guidance was cut to about 55% from about 59%. Management said, "Revenue is being affected by significantly weaker than expected demand in all geographies and market segments. In addition, the PC supply chain is aggressively reducing component inventories."
A mid-quarter update wasn't scheduled until Dec. 4, and the severity of the cut was shocking. Like Applied Materials, Intel has a fortified balance sheet and I think will survive the recession. The company had about $12.2 billion in cash and cash equivalents and short-term investments and long-term debt of about $2.7 billion on Sept. 27.
National Semiconductor Shows Weakness
Finally, National Semiconductor lowered revenue guidance for the second quarter of fiscal 2009 to a range of about $420-425 million. That's down from the $470-480 million it has previously forecast. The balance sheet of National Semiconductor is not as resilient as Intel and Applied Materials, with cash and cash equivalents of $692.5 million and long-term debt of about $1.4 billion on August 24, according to data located on Yahoo Finance. (To learn more, read Testing Balance Sheet Strength.)
The latest earnings warnings from several technology bellwether stocks raise questions on whether estimates are still too optimistic even now. Moreover, the size of the cuts demonstrates how quickly the economy has deteriorated in the last month.