Chips may slump into spring 2002

'One of the worst downturns in history,' says Morgan Stanley analyst, describing the chip industry's situation

Citing weak demand and continuing inventory issues, Morgan Stanley analyst Mark Edlestone lowered estimates on seven semiconductor companies Wednesday.

"The global semiconductor industry is in the midst of one of the worst downturns in history," Edlestone wrote in a research note. He predicted that revenue growth would continue to slump through March or April 2002, adding that excess capacity "would likely lead to more aggressive pricing trends and a lacklustre recovery".

The communications market "is clearly the end market" within the semiconductor business. That could cause companies like Texas Instruments, PMC-Sierra and Agere Systems to cut their earnings outlooks for September. Edelstone lowered estimates for Texas Instruments to 28 cents per share from 35 cents for fiscal 2001, and for Cypress Semiconductor to 15 cents per share from 25 cents.

Morgan Stanley analyst Louis Gerhardy lowered fiscal 2001 earnings estimates for PMC-Sierra from 14 cents per share to 8 cents.

The PC sector will also continue to slump, he predicted, saying that although demand should improve in the second half of the year, seasonal fluctuations in Europe could push back orders till the end of the third quarter. Continuing weakness in memory prices could hurt Rambus, he said, and he dropped fiscal 2001 earnings estimates for that company to 28 cents per share from 30 cents.

Both the PC slowdown and inventory issues in the wireless market will also hurt National Semiconductor. Edelstone dropped fiscal 2002 earnings estimates for the company to 5 cents per share from 20 cents.

The digital market, including set-top boxes and video games, should be the strongest segment, he wrote, but growth is showing signs of a slowdown, he added. He dropped 2001 earnings estimates for Broadcom from a 5 cent per share profit to a 25 cent per share loss. He also predicted that the company would see revenue drop 32 percent in the second quarter.

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