Blame it on inventory: Chipmakers trimming 3Q forecasts

September 8, 2004 – A slew of earnings updates from chipmakers suggest that the march of sustained strong growth for the industry is nearing an end.

On Sept. 2, Intel chopped its 3Q04 sequential growth projection to 5% from a prior forecast of more than 10%, claiming PC demand is weak, particularly in the consumer retail space. “We don’t sense a building momentum right now,” said Intel CFO Andy Bryant, adding that the company is hoping for a “fairly typical September” to bring third-quarter growth “at the low-end of historical expectations.”

To help burn off inventories–Bryant admitted the company was caught off guard by excess inventories in the PC channel during the second quarter–Intel is lowering wafer starts in fabs, and is closely monitoring PC processor and chip-set demand for the next four or five weeks to determine if it should adjust capital spending plans. “Certainly, I’m not in that frame of mind today, but if it gets worse than I think it will, capital is the place I would go,” Bryant said in a conference call with analysts, and suggested most of the belt-tightening would occur in 200mm fabs, “driving the transition into 300mm factories” and leading-edge processes.” Intel continues to estimate 2004 capital expenditures in a range of $3.6-$4 billion and R&D spending is budgeted at $4.8 billion this year.

Intel is not alone in trimming expectations for 3Q. Texas Instruments Inc., Dallas, TX, has pared its 3Q04 revenue estimates to $3.10-$3.24 billion, below earlier estimates of $3.20-$3.44 billion, due to growing inventory levels as the company’s customers move to shrink their own levels. Semiconductor revenue also was lowered, from $2.78-$2.89 billion to $2.67-$2.79 billion.

Also, National Semiconductor Corp., Santa Clara, CA, posted fiscal 1Q05 revenues of $548 million and a $117.7 million profit, compared with $424.8 million and $29.7 million in 1Q04. Sequentially, revenues dipped by 4% and bookings were down 29%, due to supply-chain inventory corrections in Asia slower-than-anticipated order activity over the summer, according to chairman/president/CEO Brian Halla. National said it expects distributor and customer inventories will continue to be adjusted in 2Q05, resulting in a revenue decline of 8%-10% sequentially.

Taiwan’s two foundry juggernauts, TSMC and UMC, posted another month of record sales in August, year-on-year growth has leveled off, and sequential growth has slowed to a trickle–2.8% for UMC, and 1.1% for UMC.

Not everyone is backing off the line, however. Freescale Semiconductor Inc., Austin, TX, the former chipmaking arm of Motorola, said its 3Q04 sales would be between $1.40-$1.45 billion, roughly in line with analysts’ estimates. Gross margins are expected to be 38%, up from 30.3% a year ago. The company posted sales of $1.23 billion in 3Q03. Freescale also noted a change in its reporting schedule: instead of providing mid-quarter updates, it now will offer the next quarter’s guidance at the time it reports results from the current quarter.

Also, Singapore’s Chartered Semiconductor Manufacturing has reaffirmed its 3Q04 predictions from mid-July: revenues of $255.8 million, an 86% increase from a year ago and flat with 2Q, and a net profit of $9.5 million, a 38% decline sequentially. Approximately 40% of revenues will come from 0.18-micron and below process technologies, and slightly above 15% from 0.13-micron and below. Utilization rates are unchanged from the previous quarter, at about 90%, +/-2%. J. Robert Lineback, Senior Technical Editor, and James Montgomery, News Editor


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