INDIANAPOLIS (AP) â¿¿ Monolithic Power Systems Inc. shares dropped in Thursday morning trading, a day after the chip maker said its earnings rose but warned of a fourth-quarter sales drop.

THE SPARK: The San Jose, Calif., company said Wednesday it earned $13.2 million, or 35 cents per share, in the quarter that ended Sept. 30. That's up 5 percent from the same quarter last year. Monolithic also said revenues will fall to between $45 million and $50 million for the final three months of the year because of weaker demand from customers. It said distributors must sell down large inventories before orders for Monolithic's products can rebound.

THE BIG PICTURE: Monolithic makes semiconductors for network equipment, computers, monitors, TVs and other consumer electronics. The company generated $65.8 million in revenue in the third quarter, compared with $48 million in 2009.

Consumers have been reluctant to spend on non-essential items like home electronics. They're worried about high unemployment and declining wages. The government said recently that consumer spending grew in September at its slowest rate in three months. Income fell for the first time in 14 months.

THE ANALYSIS: Stifel Nicolaus analyst Tore Svanberg said in a Thursday research note that a prolonged product shortage also cost the company some business and is stalling its growth. He has a "hold" rating on the stock.

"Our understanding is that in some cases, the customers have secured alternative suppliers, and in other cases (Monolithic) may have to regain those businesses in the customers' next product design cycle," the analyst wrote.

SHARE ACTION: Down 9.4 percent, or $1.59, to $15.26 while broader trading indexes rose more than 1 percent.

Copyright 2010 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

More from Opinion

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

12 Stocks That Our Writers and Their Sources Recommend You Buy Here

12 Stocks That Our Writers and Their Sources Recommend You Buy Here

Musk Goes on Unoriginal Media Tirade

Musk Goes on Unoriginal Media Tirade

What's Happening in Video Games This Week: On the Road to E3

What's Happening in Video Games This Week: On the Road to E3