Cell-Phone Chipmakers Aren't Immune to SARS

The latest tech casualties of SARS are Motorola(MOT) and TriQuint(TQNT), which in the past week have each blamed the disease for hurting sales in Asia.

But RF Micro Devices(RFMD) and Skyworks(SWKS), which play in the same market, certainly aren't immune from the same earnings cooties -- if not now, then possibly later in the year.

The two cell-phone chipmakers claim lousy business in Asia is already built into their June quarter forecasts. They've already disappointed Wall Street with (identical) forecasts for sequential sales to be flat to down 5%, issued back in April.

Now, trying to shift attention away from the itchy and uncomfortable present, RFMD and Skyworks are talking up the prospects of an improved second half of the year. But with the leading cell-phone market -- China -- ailing from both SARS and a hefty inventory buildup, that doesn't make such a convincing story.

At the CIBC conference in New York Monday, the leaders of the two companies put on their chipper faces. "Right now the quarter is turning out just like we expected," said RFMD chief Bob Bruggeworth in a Webcast panel discussion, suggesting that Motorola's Monday warning wasn't unexpected. "The major OEMs have a lot of optimism about the second half of the year."

Skyworks CEO Dave Aldrich agreed: "Our customers are looking at a much stronger second half than first half."

Weak Demand, Inventory Build

But in fact, one of Skyworks' biggest customers is Motorola, the world's second-biggest handset maker, which accounted for 12% of sales last year. Motorola said Monday that sales and earnings for the rest of the year would be below its expectations, courtesy of SARS and an inventory buildup among local Chinese manufacturers.

Skyworks and RFMD stand to be hurt by the same double-whammy that hurt Motorola, says Ambrish Srivastava of Gerard Klauer Mattison: namely, an unhealthy combo of weak demand caused by SARS and a buildup of inventory that will cannibalize sales.