Tickers in this Article: ALTR, SLAB, INTC, XLNX, AAPL, LLTC, TXN
Is it the best of times or the worst of times in semiconductors? It depends on who you ask. Following about two weeks after Intel's (Nasdaq:INTC) downward revision in guidance, Altera (Nasdaq:ALTR) and Silicon Labs (Nasdaq:SLAB) came out with very different outlooks on the current quarter. Looking through it all, it seems like the buzzword these days is "location, location, location" - some markets are still relatively healthy, while others have clearly weakened in the past few weeks.

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Altera Brings the Good News
Altera, a leader in the programmable logic device market with Xilinx (Nasdaq:XLNX), significantly boosted revenue guidance for the current quarter. Instead of the 4-8% sequential revenue growth that management originally projected, the figure is now in a range of 10-14%. While the company said that there was broad strength across all categories, it seems like the wireless infrastructure market is a particular area of momentum right now. Companies like Verizon (NYSE:VZ) and AT&T (NYSE:T) continue to develop 3G networks in the U.S., while foreign companies too are building more capacity for their networks.

Altera would seem to be getting a relative boost by being heavily weighted toward wireless infrastructure and industrial and not consumer or networking. In fact, the computer/networking/storage category was just 13% of sales last quarter and that looks like an area of weakness right now.

Silicon Labs Throws the Cold Water
In sharp contrast to Altera, Silicon Labs' update was considerably more negative. Management trimmed revenue guidance by roughly 15% and cut the EPS estimate by nearly one-third. Investors should also recall that SLAB trimmed its guidance when it last reported earnings, so it would appear that business is worsening at an unexpectedly quick pace.

The company noted particular weakness in its access and audio categories, due in part to flagging demand in Europe. That would seem to support the thesis that demand for consumer electronics is weak and getting weaker. Unfortunately for Silicon Labs, this company does not have a relatively large exposure to industrial markets, and only a modest exposure to other non-consumer markets like medical equipment (though Varian (NYSE:VAR) is a notable customer).

What Should Investors Make Of This?
Investors who want to take a bearish tack on Altera do not have to work too hard - this positive guidance raise can be waved away with the presumption that the company is over-shipping and will soon face bloated channel inventory. With that in mind, a little guidance from other chip makers like Xilinx, Texas Instruments (NYSE:TXN) and Linear Technology (Nasdaq:LLTC) would be helpful - while Xilinx is much more comparable to Altera, TI and Linear could give a bit more perspective on the broader chip market and (in the case of Linear especially) the industrial category.

Beyond that, it is challenging to read the tea leaves. If consumer electronics are weakening, is this a bad sign for Apple (Nasdaq:AAPL), or is Apple going to continue to live in a world apart from the rest of the consumer tech market? Is this the sign of a double-dip, or does it mean that the optimism in the first half of the year was fueled more by companies replenishing inventories from unsustainably low levels?

The Bottom Line
If investors want to wait for a time in which there are no concerns and controversies, they may as well pack it in and give up on the chip sector - virtually the only time there is consensus is when there is a bubble or absolute doom-and-gloom. For now, though, it is an uncertain sector and it seems like the health of a company is a segment-by-segment proposition. That looks like bad news for PC and consumer-heavy chip companies, but maybe not such a poor outlook for those who are not so dependent on consumer end-user demand. (For more, see Four Stocks For An Uncertain Market.)

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