Chip Companies Won't Outgrow Their Customers

Despite all the ugly news on the telecom front, investors still haven't factored in realistic expectations for the silicon used in communications. For now, that's created a glaring disconnect. But at some point, a grudging Wall Street will have to rein in its growth outlook for companies that make communications circuits.

In a research note issued Monday, Lehman's Dan Niles points out that analysts expect programmable logic device makers Xilinx (XLNX Quote) and Altera (ALTR Quote) to post sales growth of 18% to 21% in calendar year 2003. But that rosy outlook doesn't coincide with the prospects for the companies' biggest clients: communications outfits such as Cisco(CSCO Quote), Lucent(LU Quote), and Nortel(NT Quote).

The networking companies are expected to show flat revenue growth next year. ...