Tech Horizon – Week of January 12, 2009

 

Earnings reports begin this week with mostly a trickle. As most semi companies have been scaling back expectations throughout the quarter, the near-term results won't be pretty or surprising. As far as I'm concerned, I think OEM sales/guidance and aggregate inventory levels will be the important metrics to be watching. If inventories continued to climb in a period of such intense weakness, it will dampen recovery. If OEM sales and guidance come down significantly, there could be further supply chain ripples – another quarter of down 20% q/q revenues. I think it's unlikely that June guidance will be on the table as visibility remains poor.

Estimated Reporting Date	Symbol	Revenue Estimate Current Q	Operating Profit Estimate Current Q	EPS Estimate Current Q	EBITDA Estimate Current Q	Revenue Estimate Next Q	Sequential Revenue Growth Estimate, Percent	Operating Profit Estimate Next Q	EPS Estimate Next Q	EBITDA Estimate Next Q	Revenue Estimate Full Year	Operating Profit Estimate Full Year	EPS Estimate Full Year	EBITDA Estimate Full Year	Revenue Estimate Next Year	Operating Profit Estimate Next Year	EPS Estimate Next Year	EBITDA Estimate Next Year
1/13/2009	LLTC	255.2	110.3	0.34	113.5	240.4	-5.80%	97.2	0.29	100.0	1,057.5	457.4	1.44	522.0	1,049.4	456.6	1.40	515.6
1/13/2009	INFY	1,181.2	343.4	0.55	356.4	1,184.8	0.31%	343.2	0.55	356.1	4,739.4	1,351.7	2.21	1,466.6	5,183.9	1,445.7	2.32	1,549.6
1/14/2009	XLNX	445.6	102.6	0.32	120.9	413.6	-7.18%	81.7	0.26	110.8	1,829.4	435.4	1.30	519.8	1,651.0	347.0	1.03	378.1
1/15/2009	APH	733.5	141.8	0.51	162.5	672.9	-8.27%	124.4	0.43	148.3	3,214.8	628.5	2.29	723.0	2,835.6	527.9	1.89	626.0
1/15/2009	ASML	695.4	(3.6)	0.02	--	477.5	-31.34%	(102.8)	(0.11)	--	4,359.3	650.2	1.36	738.1	2,620.3	(89.2)	(0.08)	180.7
1/15/2009	INTC	8,215.0	1,610.2	0.04	3,113.1	7,386.7	-10.08%	1,012.7	0.12	2,414.5	37,663.5	9,104.9	0.94	13,675.8	31,700.6	5,350.4	0.70	9,768.7
1/15/2009	SHFL	49.0	7.1	0.08	14.3	46.4	-5.39%	3.5	0.05	12.8	185.4	20.6	0.23	48.2	210.2	35.4	0.33	64.3

 

Linear Technologies (LLTC) was one of the first semis to guide down significantly when they reported their September results. I would expect investors will pay too much attention to them as some kind of bellwether this time around. As Linear reported early in the supply chain cutbacks, it would not be surprising to see them make a further substantial cut to their outlook for the March quarter. I suspect Linear is a short into the number that should be covered on the report, but I don't have a position on either way.

Intel (INTC) reports Thursday. Expectations are very low – Jeffries presently has the most bearish forecast at down ~17% for next quarter. I'm guessing something more along the lines of $6.8 - $7.4 billion for guidance. I expect inventories rose quite a bit since last quarter, particularly on a days basis as the sales base is getting crushed. Typically Intel has a 6-10% rise in the fourth quarter relative to the third. This year revenues will be down 20% q/q. The troubling aspect of Intel's guidance is gross margins still hitting in the range despite two top line cuts since the quarter began. They have to be overproducing in order to have margins hold in that well. I expect next quarter's gross margin guidance to be substantially lower – perhaps down by 700 bps q/q – the street consensus is roughly down half that q/q. As Intel is not much of a growth story (they're the same size they were 3 years ago even before sales tanked), a big disappointment to margins will not go over well. Intel has substantial cash and is perceived as "safer" than a lot of other investments. As I've stated many times, I believe Intel is overvalued and does not deserve a multiple premium though it receives one. I expect the stock to trade under $12 over the course of the coming year, which is still down another 15% from its current price. I'd definitely stay away from the long side of the report. I have been and will continue to trade the stock from the short side.