Sometimes a surprise isn't really that surprising. Once again, both Altera (Nasdaq:ALTR) and Texas Instruments (Nasdaq:TXN) have warned that quarterly revenue is going to be slightly worse than previously expected. Given the sell-off in the chip sector since February, and the relatively modest reaction to the news, it sounds like investors had already begun to bake in expectations for a slightly slower or stretched-out recovery. (For more, see Earning Forecasts: A Primer.)

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Texas Takes down the Numbers
All things considered, the revision at Texas Instruments is far from monumental. The midpoint of guidance now calls for a sequential revenue contraction of 11%, versus a prior expectation of 8%. In real numbers, that amounts to $100 million out of about $3.1 billion.

Judging by what management had to say, it was a have/have-not quarter. Core analog performance has been solid (book-to-bill above 1) and trends are improving in markets like autos, infrastructure and PCs. Good news, then, for other analog companies like ON Semicondcutor (Nasdaq:ONNN), Microchip (Nasdaq:MCHP) and Analog Devices (NYSE:ADI) with more exposure in those markets.

Where Texas Instruments found trouble was in the wireless (phones/tablets) business, particularly in OMAP and connectivity. Assuming that the weakness in connectivity is tied to Nokia (NYSE:NOK) and Research In Motion (Nasdaq:RIMM), it's neither that surprising nor that significant.

The OMAP situation, though, bears watching. Odds are this is not a statement so much about end-user demand (which would be a risk for Broadcom (Nasdaq:BRCM) and Qualcomm (Nasdaq:QCOM)), as it is about big inventory builds at Samsung, Amazon (Nasdaq:AMZN) and Barnes & Noble (NYSE:BKS) ahead of launches where Texas Instruments had won sockets.

Not Much to Worry About with Altera
Altera's revenue adjustment was even more modest than at Texas Instruments, as management lowered its midpoint outlook by 1%.

Management didn't give a lot of specificity to the adjustment, talking about "timing issues" in military orders and some weakness in wireless. I'll go out on a limb and predict that Altera is seeing a little more weakness in China and if that's the case, Xilinx (Nasdaq:XLNX) may not see a similar slowdown. Either way, though, the bigger risk to Altera is competitive inroads by Xilinx as opposed to widespread end-market erosion.

The Bottom Line
Neither Altera nor Texas Instruments were my favorite ideas before now and they are not now, either. Broadcom and Qualcomm both look more interesting to me, and ON Semiconductor is an interesting, albeit riskier, play to consider as well. If these announcements prove to be the tip of the iceberg, though, investors may be looking at a longer time line for their chip recovery expectations. (To know more about the technology industry, read A Primer On Investing In The Tech Industry.)

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.


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