Cell-Phone Chipmakers Aren't Immune to SARS

To be sure, Skyworks' primary customer (outside former co-parent Conexant) is robust Samsung, supplying 38% of revenues last year. No. 3 cell-phone vendor Samsung has been a big share gainer, upping its portion of the market to 10.5% in the first quarter of 2003, and that momentum could help insulate Skyworks from the nasty crosswinds.

Meanwhile, RFMD draws two-thirds of its sales from leading cell-phone vendor Nokia(NOK Quote). Any positive takeaway from Nokia's midquarter update will be bound to soothe RFMD investors.

Obviously, if Nokia and Samsung can perform relatively well in a tough Asia market, their suppliers will have a leg up. But the top and third-ranked cell-phone vendors can hardly isolate themselves from trends in the world's leading cell-phone market, China.

According to Taiwan-based Market Intelligence Center, in April SARS knocked down sales in Beijing and other leading Chinese cities by as much as 80% from year-earlier levels.

At the same time, inventory levels have surged among Chinese-based handset manufacturers. MIC says China currently has nearly 24 million handsets in stock -- an inventory level equivalent to 36% of all the handsets sold in the country in 2002.

Skyworks CEO Aldrich suggested at the conference yesterday that handset vendors were getting inventory problems under control. But the degree of buildup will make that difficult, and SARS is bound to complicate efforts. Although reports suggest the disease has stopped spreading as rapidly, there's some risk it could rear up again when the flu season gets under way in the fall, points out Mahoney of EGM Capital.

In the meantime, those upbeat second-half prognostications have plenty of risk to the downside.