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Chip-Sector Earnings Look Strong

 


by Hal Plotkin
Silicon Valley Correspondent

Analysts say they expect extremely good news from several leading semiconductor firms when they announce their quarterly earnings.

“The results are going to be very good, whether you’re talking about semiconductor devices or equipment,” says Dan Niles, semiconductor industry analyst at Robertson Stephens, based in San Francisco. “Demand is outstripping supply. Customers are ordering more than can be delivered.”

Niles says Intel Corp.’s recent announcement that it plans to boost capital expenditures to $6 billion over the next year — about double the previously anticipated level — provides perhaps the best metric on the overall health of the chip sector.

Intel’s announcement, along with other measures of growth, leaves Niles convinced that the sector’s earnings momentum should continue through at least early 2002. “We still have a long way to go before we get to the cyclical downturn that is fairly common in the industry,” he says.

“It’s not a very complicated story,” agrees David Wu, an analyst at ABN AMRO Inc., based in San Francisco. “We’ve got fantastic earnings and fantastic bookings. You don’t have to be too intellectual about it. We’re in a boom. It’s hard to pick the wrong stock in this group. You could almost throw a dart, and you’re probably going to do well.”

Here is a rundown of several upcoming highly anticipated key chip and chip-equipment sector quarterly earnings reports:

Consensus Estimates for the Chip Group
Company Name Symbol Quarter Current Consensus Year-ago Earnings
Advanced Micro Devices Inc. {AMD} Q1 0.55 -0.81
Altera Corp. {ALTR} Q1 0.34 0.23
Novellus Systems Inc. {NVLS} Q1 0.39 0.08
Intel Corp. {INTC} Q1 0.69 0.57
Xilinx Inc. {XLNX} Q4 0.21 0.13
Applied Materials Inc. {AMAT} Q2 0.40 0.18
Micron Technologies Inc. {MU} Q3 0.57 -0.10
National Semiconductor Corp. {NSM} Q4 0.61 -0.24

Advanced Micro Devices Inc. {AMD}
Earnings are expected to come in at 52 cents for the first quarter, according to a First Call Corp. consensus estimate of 20 analysts, compared with 43 cents in the fourth quarter. The anticipated performance would represent quite a nice turnaround for the company, which reported a loss of 81 cents a share in the first quarter of 1999.


One-year performance chart for AMD

Advanced Micro Devices is scheduled to report its first-quarter numbers after the market close on Wednesday.

“This is going to be a huge quarter for AMD,” predicts Sudeep Balain, an analyst at Chase H&Q, based in New York. “The company is seeing very strong demand, not only for microprocessors, but also for flash memory chips that are used in set-top boxes and wireless markets. I also think we’re going to get some good guidance from them for the June quarter.”

Balain’s formal earnings estimate for Advanced Micro Devices is on the conservative side, at 50 cents a share. But he says he wouldn’t be surprised to see the company blow past his number, perhaps all the way up to 60 cents or even higher.

“This is one of the biggest calls we’ve made,” Balain says. The analyst rates the stock “buy,” his firm’s highest rating, and he has an $85 12-month price target.

Altera Corp. {ALTR}
First-quarter earnings are expected to come in at 34 cents, according to the First Call consensus estimate. That is up from 31 cents in the fourth quarter and 23 cents for the first quarter of 1999. The company makes programmable logic devices, which are used in a wide variety of electronic devices, including cell phones.

Like Advanced Micro Devices, Altera is expected to announce its first-quarter earnings on Wednesday at 5:00 p.m. EDT.


One-year performance chart for ALTR

“They should be able to meet or beat our expectations,” says Erika Klauer, a director at Deutsche Banc Alex. Brown, based in New York.

Klauer’s formal estimate is in line with the 34-cent First Call consensus. She says Wall Street appears to be more enamored with Altera rival Xilinx Inc. at the moment, but that Altera looks like a better buy from a valuation perspective.

“We strongly recommend purchase of both stocks,” Klauer says. “Altera is slightly more attractive right now.”

“Both Altera and Xilinx are going to have great numbers, with a glowing outlook for the second quarter,” agrees Charles Boucher, an analyst at Bear Stearns, based in New York.

Boucher currently has a “buy” rating on Altera, with a $125 12-month price target.

“Altera is the better play right now,” Boucher adds. “I think we’ll be looking at an upside surprise and continued strong growth.”

Novellus Systems Inc. {NVLS}
Analysts expect the company’s first-quarter earnings to come in at 39 cents, according to First Call, compared with 27 cents in the fourth quarter and 8 cents in the year-ago period.

Novellus Systems, a leading maker of semiconductor-manufacturing equipment, is benefiting from strong demand for chips and the switch over to more-advanced, larger-chip geometries that require massive investments in new chip-making tools and equipment.

Novellus Systems is scheduled to report earnings after the market close on Monday, April 17.

“We expect to see upside to most estimates,” says Byron Walker, an analyst at Warburg Dillon Read, based in New York. “Business is very strong for [chip-equipment companies]. Unit demand is very good, and selling prices are stable.”

Walker’s formal first-quarter earnings estimate for Novellus Systems is 40 cents, a penny above the consensus, but he says, “I expect them to meet or beat that. We’re in a portion of the cycle when the numbers can go up pretty quickly. The orders are there.”

Wu is even more bullish, estimating Novellus Systems’ earnings at 43 cents a share. The stock is an ABN AMRO “top pick,” his firm’s highest rating, and he has a 12-month price target of $75 on the stock.

“I expect it will get to $75 before the next 12 months is up,” Wu says.

Intel Corp. {INTC}
Earnings for the firm’s first quarter are expected to come in at 69 cents a share, according to the consensus estimate provided by First Call. That would represent no change from the company’s earnings of 69 cents in the fourth quarter, but it would be up 4 cents from the 57 cents a share the company earned for 1999’s first quarter.


One-year performance chart for INTC

Intel is scheduled to release its earnings report on Tuesday, April 18 at 5:30 p.m. EDT.

“The message we are telling our clients is that we expect Intel to meet or beat expectations,” Klauer says.

Klauer forecasts Intel’s earnings at 71 cents a share, 2 cents above the consensus estimate. She has a “strong buy” rating on the stock and says it could get to $200 over the next 12 months.

The Deutsche Banc Alex. Brown analyst says Intel is doing an excellent job capitalizing on strong demand, keeping costs under control, and taking advantage of new opportunities outside the firm’s traditional base in the personal computer market.

“Intel is one of our favorite companies,” Klauer says. “We’re accumulating right now.”

“I don’t think we’ll see as much of an upside on Intel as compared to AMD,” Boucher says. “Maybe 2 to 5 cents upside to the consensus. But it should be a good solid quarter.”

Boucher says Intel remains a bellwether stock for the chip sector.

“We’re in an epic expansion cycle over the next 12 to 18 months,” Boucher says. “We expect a chain of tremendous earnings strength. We’re very bullish for investors who have the stomach to buy on the dips we’ve seen over the last few weeks.”

Xilinx Inc. {XLNX}
The company is expected to report fiscal 2000 fourth-quarter earnings of 21 cents a share for the period ended March 31, according to First Call. That compares with 20 cents in the fiscal third quarter and 13 cents for the fiscal 1999 fourth quarter.


One-year performance chart for XLNX

Xilinx, like Altera, makes programmable logic devices that are used in advanced integrated circuits for a wide variety of applications. Customers in the fast-growing communications sector have accounted for most of Xilinx’s revenue during the most recent quarters.

The company is scheduled to release its earnings report on Thursday, April 20 at 4:30 p.m. EDT.

“We expect both Xilinx and Altera to outperform the market as a whole and tech stocks in general,” Niles says. Like several other analysts who follow the stock, however, Niles says rival Altera is probably a better bet right now, due to relative valuation levels.

Wu agrees. “Business is booming,” he says. He estimates that Xilinx will earn 23 cents for the fiscal fourth quarter, 2 cents above the consensus estimate. Wu rates the stock “buy, his firm’s second-highest rating; he has a $90 12-month price target.

Other leading chip-sector companies have already reported earnings and don’t report the results for their current quarter for at least several weeks. Analysts say it is too early to discuss these results in details. These companies include:

Applied Materials Inc. {AMAT}
On Feb. 15, the world’s largest supplier of semiconductor wafer-fabrication equipment reported fiscal first-quarter earnings for the period ended Jan. 31, of 40 cents a share, after its two-for-one split. That was 2 cents above First Call’s earnings projection for the quarter.

According to First Call, Wall Street expects the company to post fiscal second-quarter net income of 55 cents a share for the period ending April 30. Applied Materials is scheduled to announce those results on May 10 at 4:30 p.m. EDT.

Micron Technologies Inc. {MU}
On March 21, Micron Technologies reported earnings of 58 cents a share for its fiscal second quarter ended March 2, 23 cents below the First Call consensus estimate for the quarter.

Analysts attributed the disappointing results, which triggered a sharp decline in the company’s stock’s price, to falling average selling prices of the firm’s bread-and-butter semiconductor memory products.

Micron Technology’s earnings for its fiscal third quarter, ending June 2, are projected to come in at 57 cents, according to the First Call consensus. The company is slated to announce its results for its fiscal 2000 third quarter sometime around June 15.

National Semiconductor Corp. {NSM}
On March 9, National Semiconductor reported earnings of 51 cents a share for the firm’s third fiscal quarter ended Feb. 27, 6 cents above analysts’ estimates. The upside surprise was due primarily to an improvement in gross margins, which rose to 48 percent from 45.2 percent in the fiscal second quarter.

The company is slated to announce its results for its fiscal fourth quarter ending May 27, sometime in mid-June. Analysts expect National Semiconductor to report earnings of 61 cents a share, according to First Call.

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