This morning, SiRF Technology
(SIRF)
delivered another substantial revenue warning. Tech stocks had begun to rally, thanks to recent positive developments at Tiffany
(TIF)
and Bear Stearns
(TIF)
.
But SiRF's warning could quash any incipient tech rally -- at least in the consumer electronics components space.
We had a glimpse of a possible brewing storm back in early February when companies serving the handset space issued cautious guidance. I'm speaking specifically of ARM Holdings
(ARMHY)
, SiRF, National Semiconductor
(NSM)
and Infineon
(IFX)
.
It didn't help that Texas Instruments
(TXN)
lowered its revenue forecast in mid-February for the ongoing quarter by about $120 million, a figure that could translate to 5 million to 7 million mid- to high-end 3G phones. A week later, Sony Ericsson warned of a 4 million handset shortfall, citing high-end weakness.
Putting these last two warnings in context has been a challenge. Are they an isolated incident that can be pegged to market share losses for Sony Ericsson in the current quarter? That would seem unlikely considering that Sony Ericsson's new product launches from October and November were so well received and clearly gave the company decent volume momentum from the third quarter to the fourth in 2007.
Both TXN and SE warnings were big -- they caught the industry by surprise even after the recent Nasdaq tumble.
That's why this morning's SiRF warning is intriguing. SiRF sells GPS chips to both vedors of personal navigation devices such as Garmin
(GRMN)
and handset companies like Samsung.
PNDs, which typically use GPS chips, were one of the hottest consumer electronics segments in 2007; global unit sales soared by triple digits to nearly 40 million. The other big winner of 2007 was the smartphone -- 50% volume growth to 120 million units during the year.
The PND and the smartphone form an interesting pair. Both still often sell above the $300 price point, definitely fitting the high-end consumer electronics niche. The market grew to such a high level globally that high price points can become a challenge. So both seem to be uniquely vulnerable to consumer angst of any real substance.
The most interesting thing about the SiRF warning was its sheer scale. Last month, SiRF took its first-quarter revenue guidance from $92 million to $71 million to $77 million. This morning, guidance was lowered further to $60 million to $62 million. We don't usually see sales shortfalls of this scale in the component sector.
The Texas Instruments and Sony Ericsson warnings focused on high-end phones. SiRF pinned the warning on rapidly deteriorating demand -- particularly for PNDs. So we now have simultaneous, large-scale, non-overlapping warnings on both smartphones and PNDs coming within two weeks of each other. In the background lurk the minor February wobbles from ARM, Infineon, etc.
Can we avoid the assumption that the high-end consumer electronics demand in affluent Western Europe and North America is now deteriorating rapidly? I think not. We are now entering the last week of first quarter of 2008, and the three big handset/PND warnings we already have are atypically early.
The real bulk of component warnings is probably coming over the next two weeks, and the April Fool is going to be the investor who thinks that the markets are ready for this.
You can draw a connection between the nation's housing woes and demand for tech devices. Weak housing has an obvious impact on the consumer, especially since the financial and retail sector layoffs have only now begun in earnest. The first phase of the housing crash is over, but the real damage is done during the ricochet period when unemployment spikes just as the foreclosure selling finally floods the markets.
Over the next couple of weeks, we could get more concrete signs that the consumer spending is falling at a rising clip. That should serve as a clear warning to any bottom-fishing investors in the tech sector.
At time of publication, Kuittinen had no positions in the stocks mentioned, although holdings can change at any time.
Tero Kuittinen is managing director and senior analyst for Avian Securities, a brokerage firm specializing in technology companies. Although Kuittinen is an employee of Avian Securities the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Avian Securities, nor attributable to the company. Under no circumstances
does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback; click here to send an email.
