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Chipmakers warn
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March 5, 2001: 4:06 p.m. ET
Cypress, Vitesse and LSI Logic move higher after earnings warnings
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NEW YORK (CNNfn) - Four chipmakers warned Wall Street of lower-than-expected quarterly financial results Monday, but investors shrugged off the news, driving their shares mostly higher.
Three of the companies – Cypress Semiconductor Corp., Vitesse Semiconductor Corp. and LSI Logic Corp. – specializes in chips for products used in data and telecommunications. The fourth, Fairchild Semiconductor, makes commodity chips that serve as the building blocks for a broad range of electronic devices.
And they all laid the blame for their troubles on makers of networking hardware and other communications devices who, faced with slowing end markets, have either canceled or deferred their orders for chips as they work through their existing inventories.
That has become a familiar refrain for companies across the entire semiconductor sector lately. Most of the top-tier chipmakers, including Intel and Texas Instruments, as well as the leading suppliers of semiconductor capital equipment such as Applied Materials, have pointed to a buildup of inventory as the reason they will miss their previous financial targets.
Since so many chip companies signaled a weakening market prior to the latest batch of warnings, some analysts said the blow to their shares was cushioned somewhat.
"It is kind of an unusual thing to see happen," said SG Cowen analyst Mark Grossman, referring to the sharp rise in their shares after the announcements.
"I think most people understood that estimates for the year were way too high," Grossman added. "When the estimates come down to reasonable levels, that's when investors look to get back in."
 Dan Scovel, a semiconductor analyst with Needham and Co., agreed. "The stock market has obviously expected these pre-announcements," he said. "We're in a weak market."
Shares of San Jose, Calif.-based Cypress (CY: Research, Estimates) finished up 31 cents at $19.17, a 1.6 percent rise.
The company said it expects a 24 percent decline in sales for the current quarter, compared with a 4-to-9 percent decline it previously estimated. As a results of the revenue shortfall, the company said its operating profit for the quarter to be in a range between 30 cents and 34 cents per share. Analysts had generally expected Cypress to earn 56 cents per share, according to a survey conducted by earnings tracker First Call.
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T.J. Rodgers, the company's chief executive, said average selling prices have remained reasonable, but unit volume had dropped as customers reduce inventory, causing order cancellations in January. In addition, he said changes to the company's business model are expected to cause a one-time decline in sales.
"We assumed that February and March would revert back to normal bookings, but we saw no material improvement in the trends," Rodgers said in a statement Monday.
Cypress said it accepted a major client's request to convert a high-volume program to one in which Cypress will store the inventory until the client needs it. That, combined with changes to its European and Asian distribution practices, also will hurt sales, the company said.
In an effort to offset the downturn, Cypress said it has reduced capital expenditures and deferred salary increases.
 That warning came just hours after another semiconductor maker, Vitesse (VTSS: Research, Estimates), lowered its second-quarter revenue and profit projections, citing weakness in sales of chips for communications and data-storage products.
The Camarillo, Calif.-based company said it now expects to report second-quarter pro forma net income of 21-to-22 cents per share, instead of an earlier estimate of 26-to-27 cents per share.
On the revenue side, Vitesse, cut its forecast for the period by as much as 21 percent to $150 million-to-$160 million, from $180 million-to-$190 million.
Shares of Vitesse finished $1.19 higher at $39, a 3.1 percent advance.
LSI Logic (LSI: Research, Estimates) warned on both profit and revenue, citing adverse economic climate and a widespread inventory correction in the communications and storage markets. Its shares finished 51 cents higher at $16.82, a 3.1 percent rise from Friday's close. 
The Milpitas, Calif.-based company said first-quarter 2001 revenue will be about $525 million, off about 30 percent from the $751 million reported in the fourth quarter of 2000. Prior guidance called for a 4 percent increase in revenue, which analysts expected to total $780.9 million in the period, according to those polled by First Call.
The company also anticipates that first-quarter earnings will be 3 cents a diluted share, down from the 21 cents it projected earlier. First Call's forecast also was for 21 cents. The company earned 26 cents a diluted share a year earlier.
Elsewhere in the chip sector, Fairchild Semiconductor (FCS: Research, Estimates), which makes commodity semiconductors that serve as the building blocks for a broad range of electronic devices, said it expects first-quarter revenue to decline roughly 20 percent from the $468.8 million it reported in the fourth quarter of 2000.
Analysts had generally expected the company to post first-quarter revenue nearer $438.5 million, suggesting a 6.4 percent decline. The company did not provide an earnings per share estimate for the quarter. The most recent consensus estimate of analysts polled by First Call was for a profit of 35 cents per share.
"While our orders in February increased compared to January, we continue to see less robust demand than projected, especially from the communications and computing segments, and the distribution and contract manufacturing companies serving those segments," Kirk Pond, the company's chairman and CEO, said in a statement.
Fairchild Semiconductor's shares edged down 4 cents to $15.51.
-- from staff and wire reports 
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