Updated from 12:23 p.m. EST
A pair of chip companies are arguing that January and February haven't been that bad.
issued new, higherguidance this week for the March quarter. The duo report better-than-expected strength in the PC, third-generation(3G) wireless, and enterprise storage and networking markets, although thoseconclusions stand in conflict with projections from the biggest of the big.
However, the news comes in the same week that John Chambers, CEO ofXilinx-customer
, warned that businesss has been slowing in the past two weeks. And, it comes only a month after the chipand computing industries reminded the Street that the first quarter wouldbe seasonally slow, despite the lowered levels of business going intocalendar 2002. Investors were slightly confused: Xilinx rose 1% in Fridaytrading, while investors continued downward pressure on Fairchild'sshares, as it fell 2%.
Xilinx was too excited to wait until its March 5 midquarter update toraise its revenue expectations for the fourth quarter of fiscal 2002 fromlow single-digit growth to a 10% increase from the third quarter's $228million to $250 million. Wall Street estimates call for a $237 millionfourth quarter, according to Multex.com.
The programmable logic maker nowplans to hit 56% gross margins, the high end of the range of guidanceissued during its Jan. 17 earnings report, and sees days of inventorydeclining by 23% sequentially. Xilinx highlighted its storage andnetworking products for enterprise customers and its 3G business as areasof strength.
Both J.P. Morgan and Dresdner Kleinwort Wasserstein upgraded XilinxFriday morning on the news, with J.P. Morgan also upgrading Xilinx competitor
. David Wu of Wedbush Morgan was excited by Xilinx's announcement because he thinks it confirmed what some on Wall Street saw in December quarter results, that a year-long period of inventory clearing was over for chipmakers such as Xilinx, Altera and
"The first picture you take is not always crisp, but another six to eight weeks have passed," Wu said. "It's pretty clear that was the bottom. A company that says it will be up 10% based on half a quarter's worth of data, usually means they really think they can do much better than 10%, maybe 12% or 13%." Wu isn't concerned that Chambers' comments seem contradictory. If Cisco has flat revenues this quarter, as Chambers suggested, it would still buy components from Xilinx to stock its inventories. Wedbush Morgan analyst David Wu told clients that because Xilinx reported strength in older products, its outlook could signal "positivecyclical improvement," and he also pinpointed Altera as well as as other potential beneficiaries of stronger business.His firm has no banking relationship with the chip companies.
Merrill Lynch's Chris Danely told clients in a note that Xilinx's optimismmost likely comes from better placement than its competitors at bigcustomers such as Cisco,
Merrill has no banking relationship with Xilinx. With Cisco's recent comments,however, it seems possible that Xilinx's uptick could be more aboutrestocking customers' inventory, not necessarily end-market pickup.
Fairchild detailed increased activity in the PC and other consumersectors as the reason for upping its projections. The high-performancecomponent maker previously anticipated its revenue would fall 3% to 5%from the fourth quarter of 2001's $324.6 million in revenue. Customerorders remained healthy in early January, instead of napping untilmid-February, leading the company to forecast flat revenue in the firstquarter of 2002.
The chipmaker says its book-to-bill ratio is over 1:1because of the unexpected orders. Not wanting investors to get ahead ofthemselves, Fairchild cautioned that from what it sees, thewireless market is seeing its normal seasonal downturn, and wireline,networking and power-supply businesses are still recovering at a slowerpace.
Putting the news in context, just a month ago, chip manufacturers andcompute -makers such as
tempered positive Decemberquarter results with warnings that the postholiday period would be tougherbecause of a typical seasonal lull. Intel forecast a sequential 5% revenueslide, while Compaq expects an 11% drop, bracing the Street for weakeningconsumer strength in January.
More recently, quarterly stragglers
reported results through the end of January that showed continuing healthin the sector, though H-P forecast slightly down revenue and Dell sees salesfalling 3% to 5% in the quarter under way.
Meanwhile, wireless chip stalwart
reiterated itsprevious March-quarter guidance Wednesday, forecasting flat revenues fromthe fourth quarter's $1.8 billion finish. Companies big and small havewarned the market that IT spending did not return to health at the end of2001, and could not be counted on to do so at the beginning of 2002.
At thevery least, there are now two companies seeing a little life in theirsegments, but it's too soon to tell if, following a holiday season thatwasn't supposed to be, some of the projected downturn might be lighter thanexpected as well.