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Component Makers' Good News Wasn't Quite What It Seemed

The trickle of seemingly good news was a reflection of how bad it's been in the mobile-phone business.

Mobile-phone component vendors are moving in an unfamiliar direction.Could it be ... up?

In the last week, slightly positive news has trickled out of

TriQuint Semiconductor



RF Microdevices





, all companies that deal with the punished handsetsector.

On the other side of the coin, wireless equipment makers




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have explained thathopes for revenue growth in the third quarter have disappeared, leavingthe quarter flat with the dismal second quarter, not improved.

Thediscrepancy between their views comes from the seriously depressednature of the component makers, making small progress look striking.Additionally, exposure to the stronger mobile-phone portion ofequipment provider's business works in their favor.

TriQuint reported on its late-August monthly update and atinvestment conferences that it will hit its third-quarter objectives of30% sequential improvement, climbing to $80 million in revenue. RFMD gota Credit Suisse First Boston upgrade after expressing confidence thatits September quarter would beat Street estimates for $91 million, alsoa 30% increase from its previous quarter.

Anadigics forecast a widerloss in the current quarter, but on greater-than-expected revenue.Investors didn't get carried away by the news: Anadigics (down 14%), RFMicro (off 11%) and Anadigics (down 8%) all followed the more familiardownward trajectory in September trading. (Triquint will give anotherbriefing on Sept. 18.)

The mobile-phone market is in much better shape than the wirelessequipment market. While carriers in Europe and the U.S. are reluctantto buy big-ticket items, consumers around the world have managed tokeep up at least a minimal level of purchasing. That doesn't mean thehandset business is thriving, by any means.


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, Motorola andEricsson have precipitously dropped their estimates for total globalhandset sales in 2001 from around 600 million to start the year toalmost two-month-old estimates closer to 400 million. Wall Street hasfollowed, with conservative estimates dipping in the high 300 millionrange that would mark a decline from 2000's shipment of 405 millionphones.

One promising note in the mobile-phone sector, however, is thelong-awaited end to an inventory backup that took the firsttwo quarters of 2001 to work off. Mobile-phone makers started 2001 with30 days of mobile phones in the sales channel and in their ownwarehouses after a tough holiday season. In the third quarter, thatoverhang is gone, and mobile-phone makers have begun to reorder.

All of this has created a revival of orders for component makersafter two quarters of famine. This is not a run-on componentry, but awelcome uptick after months of no orders. A familiar refrain of chipexecutives this spring was the shrugged-shouldered assertion that therewould be no more "pushouts" of orders, because there weren't any ordersto be delayed.

"On top of the slowdown in overall demand because of the economics,everyone's taken their numbers down, down, down," says

US Bancorp Piper Jaffray

's Sam May of the chipmakers. Speaking of down, helowered his estimate for 2001 handset shipments from 425 million,projected in May, to 385 million. He believes third-quartermobile-phone shipments will be flat with the second quarter, followedby a fourth-quarter return that's "a little bit up."

But he did expressoptimism with Nokia's midquarter update Tuesday, which marked the third equipment provider towarn in a week's span. While Nokia's revenue won't comein as planned, May said that Nokia's forecast was a confidence-buildercompared to the fears people had after dire outlooks from Ericsson andMotorola.