Chip Companies Won't Outgrow Their Customers

Lipacis says his revenue estimates for communications chipmakers in the fourth quarter this year are now at or below June 1998 quarter run rates.

Meanwhile, he expects AMCC to grow by only 14%, well below Street expectations for 31%, while PMC-Sierra should increase sales by just under 33%, a little less than consensus estimates of 35%. In both cases, Lipacis believes that growth will take place off a 2002 revenue base that's below Street forecasts.

On a related note, on Monday Prudential cut its rating on the communications chip industry to market underperform, from its previous outperform rating, citing the lagging fortunes of potential customers.

"We believe 2003 will be another challenging year for communications-semi names, particularly for those with overweighted telecom exposure, with consolidation starting to occur, albeit at a slower than initially expected rate," writes Hans Mosesmann.

As a bearish indicator, he points to continued cuts in telecom companies' capital expenditure budgets: the cost-cutting moves have squished hopes for spending growth that could trickle down to chipmakers.