Silicon Labs' Warning: Bad Sign For Cellphone Suppliers Like Agere and RF Micro Devices?

As I noted in a post last night, Silicon Laboratories (SLAB) yesterday warned that its third quarter revenue would be weaker than previously forecast, due to weakness in analog modem demand and issues at some cell phone manufacturers. That has some people extrapolating to other component vendors: as noted earlier today, CIBC today cut its rating on Agere (AGR).

But other analysts think the issue is more specific to Silicon Labs; and in any case, most remain quite supportive of the stock, which is not down as much as last night’s after-hours trading would have suggested. Here are some excerpts from this morning’s batch of research on the company:

• Satya Chillara, Pacific Growth: We still believe that the ramp of the single chip AeroFone should be a major revenue driver for 2007. Also, we anticipate the incorpoation of FM tuner functionality into most cell phones should incrementally drive revenue for the company going forward. Maintain Buy rating, no estimate changes.
• Joe Osha, Merrill Lynch: The revised guidance implies a 300 [basis point] gross margin drop [from the second quarter] which makes us think price pressurs are also playing a role…Also the success of TXN (Texas Instruments) single chip solution appears to be impacing RF vendors negatively. Looking into the next several quarters, SLAB still has significant exposure to GPRS transceivers and analog modem ICs where we see further risk of integration and price pressures…SLAB’s announcement doesn’t bode well for wireless RF vendors with significant ODM and China OEM exposure. We are especially concerned about Skyworks Solutions and are not ruling out potential risk to our [September quarter] estimates. Maintain Neutral rating on SLAB.
• Brian Modoff, Deutsche Bank: [C]omponent suppliers will continue to come under pressure from larger vendors with greater R&D and manufacturing scale. SLAB is also facing greater-than-expected declines in analog modem demand and share shifts among its ODM customers. We believe handset volumes remain robust globally and that SLAB’s results cannot be correlated to handset vendor results.Maintain Hold rating, cuts price target to $30, from $36.
• Mark Edelstone, Morgan Stanley: We lower out [2006 and 2007] EPS [estimates] to reflect slower demand and the belief that the rate of margin expansion will also slow with the reduction in leverage caused by the lower revenues, and cut our price target to $45…However, we believe SLAB should be valued on its earnings power and trade at a premium to the average stock in our universe…Maintain our Overweight rating.
• Jeff Loff, Credit Suisse: We do not believe Silicon Labs’ preannouncement introduces new risk for RFMD (RF Micro Devices), Skyworks or Conexant (CNXT) and in fact believe that these companies are tracking at least in line with their original guidance.
• Craig Berger, Wedbush Morgan: Handset inventory issues worse than we previously anticipated in the near-term, however our positive stance on SLAB largely relates to a successful 2007 ramp of AeroFone and FM Tuner chips…at current levels…we think near-term downside risk to the stock is modest (note that SLAB has $7 [a share] of net cash. Lowering target price to $41 from $48, and cutting estimates, but maintain Buy Rating.

Silicon Labs today is down 45 cents at $31.63, while Conexant is off 8 cents at $1.82, RF Micro is up a penny at $7.32 and Skyworks has dropped 34 cents to $5.40.

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