Wedbush Morgan analysts Craig Berger and James Schneider sent a Q1 earnings preview of Semiconductor Components companies, providing solid guidance for analog firms ahead of seasonal build.
Berger and Schneider's favorite sector stocks -- in order of preference -- are : Genesis Microchip (GNSS), Monolithic Power (MPWR), ON Semiconductor (ONNN), Microsemi (MSCC), Zoran (ZRAN), Atmel (ATML), and LSI (LSI). Excerpt:
* Semiconductor stocks have retraced some of the gains made late in 2005 and at the beginning of 2006. We expect the SOX to trade sideways until investors get more visibility into the strength of the electronics seasonal build in June or July.
* We generally expect strong reports from analog chip companies in our sector including ONNN, FCS, IRF, and MSCC as continued supply tightness drives chip pricing leverage that should begin to benefit margins in Q2.
* While consumer electronics firms are experiencing some springtime doldrums, we generally believe that orders are going to ramp strongly in Q2, with firms beginning to ship for back-to-school and holidays by the end of the quarter.
* Both GNSS and TRID June guidance will be important barometers for gauging LCD TV market strength for the year, and we expect both firms to guide June revenues nicely higher.
* Zoran is likely to post strong margin and EPS results driven by conservative guidance, incremental royalties from MediaTek litigation victories, and by healthy end-market dynamics for digital TV chips and digital camera chips.
* For SigmaTel, we will look at Q2 revenue guidance as a proxy for gauging the company's market share losses to archrival Actions Semi. More importantly, we believe management's commentary on cost reduction will be key to understanding the firm's financial health in coming quarters.
* Microsemi's revenue guidance is likely to be in line with Consensus, though we expect there could be some positive cost reduction news announced with the closing of the APT acquisition on that same day.
* We will watch Atmel's Q2 guidance closely for indications of market dynamics in the company's microcontroller and RF businesses, for signs that a beneficial pricing environment can be sustained through Q2, and for possible cost-cutting commentary from management. We think investors will continue to warm to Atmel's turnaround story over the coming months as they see continued evidence of a more conservative management style.