Providers of cell-phone chips were feeling some heat Tuesday after Nokia ( NOK)
reaffirmed its expectations for handset growth of 10% in 2003. Wall Street had been hoping Nokia might raise its growth outlook in the wake of a bullish Merrill Lynch report. RF Micro Devices ( RFMD), which pulls in about half its sales from Nokia, dropped 97 cents, or 7.6%, to $11.82. TriQuint ( TQNT), which draws about 15% of its revenue from the handset outfit, was off 30 cents or 5% to $5.72. Skyworks ( SWKS), whose biggest customer is Samsung, took a dive too, falling 82 cents or 7% to $10.83. The slump in wireless chipmakers occurred only a day after Texas Instruments ( TXN) ticked up its sales and earnings guidance, citing strength in its wireless and analog business. But Ragen MacKenzie analyst Daniel Nelson says it's not surprising that TI's encouraging comments on wireless couldn't stem the slide for chipmakers in the sector today. "The prices for these stocks are really kind of based on sentiment and long-term investor friendly feelings toward the sector, and not really on near-term fundamentals." Besides, he says, "I think people were already expecting that the handset business is going to be pretty good in the fourth quarter. In a relative sense, that's probably already in the stocks. And then when you think about it, after Q4, there's usually a seasonal downturn in Q1."
The last time TI gave a specific forecast for its wireless business, in October, it was gearing for sales growth in the high single digits, spurred by demand for 2.5G phones in the holiday season. RF Micro expects sales in the December quarter to grow 12% to 15%, excluding the effect of a recent acquisition, while TriQuint has a meeker outlook, with sales likely to be flat to up 5%. But TriQuint's guidance for the first quarter of 2003 reflects the typical seasonal dip for wireless sales: It said last week that revenue in its core business for the period will likely fall 10%, excluding the effect of an acquisition. At this point, Nelson says, investors are probably in a profit-taking mood. "I think
selling is a rational response to the way the stocks have moved. People are thinking, 'The stocks have run so far, what's going to take them higher?'" Shares of cell-phone chipmakers have raced upwards from their early October lows, outstripping even the 75% rise of the benchmark SOX index. As of Monday's close, RF Micro had risen 128%, TriQuint was up 113%, and Skyworks had surged 185%.