No Comfort for Comm Chips From Cisco

Still, it's clear that communications IC suppliers continue to have little leverage on pricing. The ongoing slump suggests a more painful industry shake-out is likely in the offing, notes Liang. Already, layoffs have taken place at Applied Micro Circuits(AMCC), Vitesse(VTSS), PMC-Sierra (PMCS) and Broadcom(BRCM).

"Right now the economy is weak so demand is weak and there's continued excess supply, given that there are still many suppliers," says Liang. "But the semiconductor industry is very good in terms of rationalizing itself through downturns." Over the next 12 to 18 months, he predicts supply will be forced back into line through continued restructuring and layoffs -- as well as consolidation, as companies are forced to shut down or merge.

Despite the marked lack of good news to be drawn from Cisco's report -- Harrison sums it up as "pretty much a nonevent" for communications chip stocks -- a raft of Cisco's chip suppliers enjoyed a small pop today, taking part in a broader market surge (that later subsided) following Secretary of State Powell's speech.

Xilinx(XLNX) gained 37 cents or 1.9% to $19.31, while Altera(ALTR) climbed 11 cents, or 1% to $11.20. Applied Micro closed flat at $3.50, while PMC-Sierra was up 4 cents or 0.8% to $5.28; Vitesse gained 11 cents or 5.6% to $2.05. Broadcom was up 8 cents or 0.6% to $13.69, while shares of Agere were up a penny, or 0.6% at $1.58.

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