The outlook for the chip sector keeps crumbling, and the Street keeps bringing down its numbers.
This morning, analysts at both Robert W. Baird and Needham issued highly negative reports on the outlook for the sector. In short, rather than seeing any signs that things might soon get better, or at least bottom, the two firms fear that conditions continue to erode, with no near-term end of the downward slide in sight.
- Tristan Gerra, the chip analyst at Robert W. Baird, on Friday downgraded Texas Instruments (TXN) and Analog Devices (ADI) to Underperform from Neutral, while cutting Altera (ALTR), Fairchild (FCS), Lattice (LSCC) and GSI Techonology (GSIT) to Neutral from Outperform.
Geffa says the sector will see nearly 40% of its revenue evaporate in Q4 of this year and Q1 of next year, and that the decline won’t be made up over the rest of 2009. He sees no real recovery until 2010, and doesn’t expect the stocks to take that into account until the second half of next year. Gerra says that given the magnitude of the coming revenue collapse, some chip stocks look fully valued, even after a huge drop in prices.
- Needham chip analyst N. Quinn Bolton wrote in a report this morning that he now sees chip industry sales down 16% in 2009, which is much worse than either the consensus or any third-party research forecasts. He notes that conditions have further deteriorated over the past month, with tighter credit affecting the financial stability of some smaller players in the supply chain. Inventories, he adds, need to come down to reflect reduced demand. He expects industry wide sales to be down 14% sequentially in Q4, with further sequential declines of 9% in Q1 and 4% in Q2, before staging a modest recovery in the second half of next year; he projects 9% growth in 2010.
Bolton cut his Q4 and 2009 estimates substantially for many of the companies he covers, including Atheros (ATHR), Broadcom, Cavium (CAVM), COGO Group (COGO), Hittite Microwave (HITT), Ikanos (IKAN), Mindspeed (MSPD), Texas Instruments, Nvidia (NVDA), Leadis (OTCPK:LDIS) Silicon Image (SIMG), Techwell (TWLL), Trident (TRID) and Vimicro (VIMC)
That said, he thinks we’re getting close to the bottom. He says many buy-siders already expect 2009 estimates to trend toward his pessimistic view; and he says valuations are already at or below previous trough levels. He also thinks investors will likely anticipate a return to sequential revenue growth in Q3 before it happens. But he says there is little chance of a sustainable recovery in semiconductor stocks over the next few months.