Chip Results Confirm Pattern Of Cautious Recovery

 

A string of financial results from mobile chip suppliers reinforce the view that the past two quarters have been very tough, but there is reason for cautious optimism for the rest of the year. Intel, Qualcomm and Texas Instruments set the pattern, and this week saw reports from Infineon, STMicro and ARM.

Focal Points:

• Warren East, CEO at ARM - whose processors underpin the vast majority of mobile devices, but are now being challenged by Intel x86 - said: "There are good reasons to feel optimistic about short term growth but maybe the medium term is more problematic." The massive destocking and inventory clearance of the past two quarters has ended, he said, and "foundries are rebounding spectacularly", but he remains uncertain of whether this is a temporary bounceback. Visibility remains limited and he does not expect a return to normal seasonality for the rest of the year at least.
• ARM's first quarter figures outperformed the semiconductor market. Sales were up 18% year-on-year to £79.9m and pre-tax profit was up 12% to £23.9m. But this was short of analyst expectations and much of the boost came from the changed dollar:pound exchange for the UK firm. In dollar terms, sales in the quarter, at $120.9m, were down 10% year-on-year (ARM books 95% of its sales in dollars but reports results in UK pounds).
• ARM maintained its guidance that, in dollar terms, "revenues will be between 16% and 17% off what we achieved in 2008, but then that is in a market that is expected to be about 25% lower."
• Meanwhile, Infineon met analyst expectations with sales of €747m ($971m) in its second fiscal quarter, but lowered its outlook for the second half of the year and announced capex cuts. The only bright spot was wireless communications, where Infineon expects to gain market share this year and increase revenues by about 4%. Infineon has the flagship Apple iPhone baseband contract and recently extended its relationship with Nokia to cover EDGE as well as GSM.
• For the quarter ahead, the company expects sales to climb 10%, mainly driven by the wireless business, as its important auto chip business continues to suffer. For the remainder of the fiscal year, which ends on September 30, CEO Peter Bauer lowered forecasts, from a 15% revenue decline to a 20% drop.
• Over at STMicro, the company said its new wireless joint venture with Ericsson would cut 1,200 jobs as part of its rationalization program. ST's first quarter revenue fell to $1.66bn in the first quarter, down 33% year-on-year, and net loss was $541m, compared to $84m last year. For the first two months of its existence, the ST-Ericsson venture posted a net loss of $89m on sales of $391m.

Editor’s Note: there are basic patterns that are emerging in this harsh economy. First of all, no one expects the economy to turn around that quickly. Second, although generally the economy is “recessed” there are still areas that are exhibiting growth. Ultimately, this is a good time for review of processes, resource management and contractual commitments.