On the heels of yesterday's
bearish report fromgiant chipmaker
, Wall Street took an ax to next year'searnings estimates, with some analysts cutting profitexpectations by a whopping two-thirds.
Today shares plummeted $2.89, or 16.9%, to $14.23in early afternoon trading. The news weighed heavilyon other chips stocks, with the Philadelphia StockExchange Semiconductor Index falling 5% in sympathy.
Analysts groused this morning that they weren'texpecting the falloff in sales that TI predictedyesterday. "We felt nervous about fourth-quarter 2002growth, but never did we suspect semiconductor
saleswill decline 5% quarter on quarter," wrote WedbushMorgan analyst David Wu, whose firm has no bankingrelationship with TI.
Wu said he was "disappointed" with TI'sperformance, adding: "For management torealize the promise of superior performance from itsmore-focused strategy in semiconductors, additionalpruning of its product line is probably necessary.Otherwise, it will be viewed as just anotherbroad-based semiconductor company that moves with thecycles, admittedly no longer burdened by the nastyDRAM business."
He slashed his outlook for 2003 earnings from 55 cents to 25 cents.
Many other analysts who'd expected higher profitsthan Wu cut their forecasts still more sharply. AtBanc of America, Doug Lee reeled in his outlook from75 cents next year to 28 cents. Like Wu, Lee has a market perform on the stock;his firm hasn't done recent banking for TI.
He offered somewhat kinder words for the company,saying its troubles reflect the broader market andcan't be blamed on faulty execution. "We applaudmanagement's focus on inventory management and costcontrol in an otherwise difficult macro environment,"Lee added. TI reported that days sales outstanding fellto 61 from 65 in the prior quarter; yesterday, it alsoannounced layoffs of 500 employees.
Meanwhile, others took issue with TI's hopefulcomments on wireless sales, which are expected toprovide the only spot of growth in the fourth quarter.On the conference call yesterday, management talked upthe prospects for holiday sales of high-end GPRSphones. With GPRS-related wireless revenues rising to40% of total wireless sales for TI in the most recentquarter, a strong season would be a boon to thecompany.
But that's far from a sure thing, said Investec'sEric Ross. "We don't expect GPRS units to truly becomea meaningful portion of handset revenues until thesecond half of 2003, when we expect corporate andhigh-end buyers will drive the initial demand," hewrote in a note out Tuesday. Investec hasn't done banking for TI.
At U.S. Bancorp Piper Jaffray, Ashok Kumarseconded that notion. "Wireless, up 9%
in the thirdquarter, remains a standout, but weak consumerspending could impact sell-through," he said."Entering the holiday season with falling consumerconfidence and labor market weakness increases thepotential for disappointments across the wireless foodchain."
Kumar axed his profit outlook for TI from 75 centsto 20 cents next year, while cutting his revenueforecast from $10.25 billion to $8.5 billion.
He said he thinks the stock would be fairly valuedat $12, or about two times book value, far off hisprevious price target of $30. A valuation of $12implies more than 15% downside from the levels at whichshares were trading in the early afternoon.
Elaborating on his gloomy take, Kumar wrote:"While the
may be bottoming,there are scant signs of the same for either the
or the SOX. While the
broader market isfairly valued at 18x-19x trend earnings, bubblevaluations in the tech sector have yet to fully comein."
He added, "Tech spending in 2003 is unlikely torecover without a pickup in global economic activity.So increasingly, 2003 looks to be another transitionyear."