Semis: FBR Cuts Estimates, But Inventory to Turn Positive

FBR Capital’s Craig Berger decided to kick off the week of the Consumer Electronics Show with a dose of bitter medicine: He cut estimates for a slew of chip companies, including Broadcom (BRCM), Atmel (ATML), Microsemi (MSCC), Maxim Integrated Products (MXIM), International Rectifier (IRF), and On Semiconductor (ONNN), “given industry business dynamics have gotten slightly worse over the past couple of months.”

Inventory is still being cleared by distributors, and the networking and 2G cellular markets having been deteriorating “of late,” he notes. He also concedes he may have “modeled too aggressively” for this quarter’s estimates.

However, it’s likely chip executives will increasingly refer to the first quarter as the “trough” in fundamentals, Berger acknowledges. All the stocks are rated Outperform, and he sees better times ahead as 2012 brings inventory replenishment.

Berger cut his Broadcom estimate to 59 cents per share this quarter from 60, but above the consensus 53 cents; he cut Atmel to 12 cents from 15 cents, below the consensus 15 cents; he cut IRF’s estimate to 3 cents from 7 cents, versus consensus 4 cents; he cut Maxim’s estimate to 37 cents from 38 cents, above the consensus 33 cents; Microsemi goes to 49 cents from 50 cents, above the consensus 48 cents; and ON goes to 9 cents from 13 cents, above the consensus 7 cents.

Berger also offers a rather ho-hum assessment of the show this week:

Regarding CES, clearly the show is less exciting than last year when “Tablet Mania” gripped the Street, and with the sector in the throes of an up-cycle. This year’s key focus areas will include smartphone demand and design-win trends, incremental details on Windows 8 timing and legacy support for Office and other! applica tions, support for ARM- based PCs among key OEMs and ODMs (and ecosystem partners), and traction for Intel’s Ultrabook efforts. We expect to hear some positive design-win commentary out of Qualcomm, Broadcom, Maxim, Atmel, and others.

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