Goldman Sachs Drops Earnings Expectations on Chip Names

By Dan Bernstein ,

(Updated from 10:13 a.m.)

Goldman Sachs

analyst Nathaniel Cohn lowered his estimates on four chipmakers this morning, saying they will likely experience another revenue decline in the third quarter.

Cohn revised his earnings forecasts for

Applied Micro Circuits

(AMCC)

,

Conexant Systems

(CNXT) - Get Report

,

PMC-Sierra

(PMCS)

and

Vitesse Semiconductor

(VTSS)

to "reflect continued deterioration in demand."

As last night's warning from

Tellabs

(TLAB)

reminded investors, communications equipment companies -- the customers who buy products from Applied Micro, Conexant, PMC-Sierra and Vitesse -- expect a major decrease in revenue this year. "It is difficult to believe that

AMCC, PMCS, VTSS, and CNXT will not see revenues decline much steeper than their customers," Cohn said in his note.

He cut earnings estimates for Applied Micro Circuits' current fiscal year, 2002, to a loss of 5 cents a share from the previous estimate of a 5 cent gain; and for 2003, Cohn cut estimates to a 5 cent profit from the prior estimate of a 25 cent profit. (Applied Micro's first quarter 2002 starts in the second quarter of the calendar year because the company's fourth quarter for the previous year ends in the spring.) Cohn's earnings-per-share, or EPS, estimate for the current June quarter remains at a loss of a penny a share.

For PMC-Sierra, Cohn wrote: "With its top three customers still facing soft demand, and its European customers now beginning to show signs of weakness, we believe there is risk to both the current quarter and September's estimate." He cut fiscal 2001 earnings estimates to $392 million and EPS to a loss of 10 cents, from $454 million and a profit of 6 cents a share. Full fiscal year 2002 estimates were lowered to $475 million and 18 cents a share from $578 million and 37 cents a share.

Conexant's outlook also looks grim, according to Cohn. "The near-term business remains challenging and thus

we are lowering our fiscal Q3 estimates from a 15% sequential decline to a 22% decline." The analyst now predicts a loss of $1.30 a share in fiscal 2001, more than his earlier expectation of a $1.20 loss. For fiscal 2002, he expects Conexant to lose $1.05 a share, more than his prior estimate of an 81 cent per share loss.

He cut fiscal 2001 estimates for Vitesse to 33 cents a share from 40 cents a share and the company's fiscal 2002 estimates to 9 cents a share from 27 cents a share.

In recent trading, Applied Micro was up 0.3% to $13.53, well off its 52-week high of $109.75. Conexant was losing 0.7% to $7.55. Its 52-week high is $60.81. Vitesse was off by 2.7% to $16.65; its annual high of $95.18. PMC-Sierra was losing 1.2% to $24.55, a fraction of its 52-week high of $246.25.

The

Philadelphia Stock Exchange Semiconductor Index

, which tracks the chip sector, was lately off 2.8%.

Cohn said the magnitude of the third quarter's sequential decline would depend largely on second-quarter results. None of the companies he named in his note have reported those results yet.

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