A year ago, the semiconductor sector seemed on cruise control, while other sectors of telecom had just begun to rev up their economic recovery engines.
Quarter after quarter companies reported sequential growth, confirmed by studies reflecting a surge in demand to feed a growing device market.
Today, a slowdown seems to have crept into that space, as five main players reduced quarterly estimates during the past month. The companies include Intel Corp., RF Micro Devices Inc., Philips Semiconductors, Texas Instruments Inc. and Agere Systems Inc.
Agere announced it plans to lay off 500 employees, which will include administrative functions, as well as sales, marketing and product development parts of the business, according to the company. The firm also plans to shut down its wafer plant in Florida if it does not secure a buyer by December 2005.
Agere said it would take charges in the range of $340 million and $360 million, while reaffirming that revenues for the September quarter will be in the range of $420 million to $445 million, in line with its July guidance.
In a report, research firm iSuppli attributed the dip to a slowdown in the mobile-phone and notebook PC markets.
“The rapid decline in semiconductor industry growth is due to softening prices for chips as well as to a slowing in the electronic equipment markets, which drive chip sales,” said the research firm, explaining the slowdown began in the second half of the year. Sales were flat in the first half.
“It’s cyclical,” remarked Fritz Jordan, analyst with MobileTrax. “How come they didn’t see it coming?”
iSuppli has reduced its revenue estimates for industry from 11.8 percent to 9.6 percent for 2005. Sales grew by 31.4 percent in the first half of this year, iSuppli noted, but sales will drop to 20 percent in the second half.
“However, the softening of these two product categories is only a symptom of the general deceleration of the electronics market, spurred by a tentative global outlook and the weakening of consumer upgrade purchases,” said iSuppli.
Mobile-phone shipments have been growing in the past two years by 20 percent and 18 percent respectively, but 2005 will witness about a 5-percent jump, said the research firm. This seems to chime in with Agere’s forecast for its first-quarter revenues for 2005, which it expects to grow about 5 percent, attributing it to “inventory adjustments” in the areas of GPRS mobile phones and telecom products.
Philips is the first European chipmaker to join American and Asian players to predict a subdued market ahead. The third-largest chipmaker in Europe supplies products for Nokia Corp.’s mobile phones. It expects a rosier 2004, though, with 26-percent growth.
The company’s chief executive, Scott McGregor, who is stepping down Jan. 1, said Philips’ customers are “shortening their order books,” with what he describes as “a wait-and-see attitude” from its clients.
The world’s largest chip supplier, Taiwan Semiconductor, said its customers are slashing inventory about 19 percent.
Although Intel met its second-quarter expectations, it expects third-quarter revenue of between $8.6 billion and $9.2 billion, which is higher than consensus estimates. But the company warned its margins may fall on lower selling prices of processors and better sales performance of less expensive parts. So revenue will outpace its profits.
RFMD said its September 2004 quarterly revenue will be lower than the previous quarter by about 8 to 12 percent, which will amount to about $146 million to $152.5 million. It ascribed the picture of slower anticipated sales to “certain Asian handset customers.”
The company, however, expects sequential revenue growth in the December quarter in its cellular, wireless connectivity and infrastructure units.
“The impact of short-term inventory adjustments, primarily in Asia, clearly impacted our GSM power amplifier business in the September quarter,” said Bob Bruggeworth, president and CEO of RFMD. “We were able to partially offset this weakness by growing our GSM/GPRS/EDGE market share at the world’s two handset original equipment manufacturers.”
