2009 ended with a bang for local chipmakers and this year could prove even better, according to Wall Street analysts.
They’re expecting results for the December quarter—now rolling in—to top their own upwardly revised outlooks.
“We are expecting our covered companies to exceed revenue guidance,” said Tore Svanberg, an analyst at Thomas Weisel Partners LLC in San Francisco. “We also expect most chip companies to report earnings at or above the high-end of their guidance ranges.”
Last week, two Orange County chipmakers kicked off earnings season with varying results.
Newport Beach’s Conexant Systems Inc., which makes chips for modems, computers and digital picture frames, posted better-than-expected results for the recently ended quarter and offered an outlook for the current one that topped forecasts.
Microsemi Corp., an Irvine maker of chips for the defense, healthcare and auto industries, reported results that met expectations and offered a profit outlook in line with forecasts and a sales projection slightly ahead of them.
Up next are the county’s two other publicly traded chipmakers, Irvine’s Broadcom Corp. and Mindspeed Technologies Inc. of Newport Beach.
Broadcom, the county’s largest chipmaker with a recent market value of around $15 billion, is set to report results next week.
In December, Broadcom upped its fourth-quarter outlook on better-than-expected demand.
Broadcom said it expects to report $1.32 billion in fourth-quarter revenue, up 17% from a year earlier and topping a previous estimate of $1.25 billion. It didn’t give a profit outlook.
Wall Street analysts, on average, are looking for fourth-quarter profits of $218 million, up 37% from a year earlier.
“We would not be surprised if the company’s fourth-quarter results were slightly better than expected,” said Ross Seymour, an analyst at Deutsche Bank Securities Inc. in San Francisco.
Mindspeed, a maker of networking chips, is set to report results today.
Earlier this month, it narrowed its sales outlook for the recently ended quarter and gave a profit outlook that topped what Wall Street had been expecting.
Mindspeed projects revenue of about $37 million for the three months through Jan. 1, near the high end of its previous outlook of $36.1 million to $37.5 million and in line with estimates.
The company projects profits before charges and benefits of $2 million.
The forecast represents “the highest level of profitability the company has achieved as a public company,” Mindspeed said.
The company spun off from Conexant in 2003.
“We are encouraged by Mindspeed’s preliminary results and continue to see improving fundamentals,” said Daniel Morris, an analyst at Oppenheimer & Co. in New York.
Morris has an “outperform” rating and a share price target of around $6.
Mindspeed’s stock was trading at around $6 last week on a market value of about $180 million.
In the current quarter and beyond, industry watchers see pent-up demand, low stockpiles and rising stocks for chipmakers.
“We expect the semiconductor sector to outperform again in 2010 based on a combination of lean supply, strengthening demand and valuation expansion,” Deutsche Bank’s Seymour said.
The Philadelphia Semiconductor Index, a group of 18 chip stocks, ended 2009 up 70%. Broadcom saw an 80% rise last year. Microsemi, the second-largest local chipmaker, was up 40%.
The county’s smaller chipmakers saw even bigger gains: Mindspeed was up 400%, while Conexant rose 200%.
There are continued high hopes for this year.
“We expect 2010 to be the strongest growth year for semis since the 1990s,” Svanberg of Thomas Weisel said.
Global chip sales could reach $40 billion this year, up 24% from last year, according to Svanberg. That would be one of strongest growth rates since the peak of the technology boom in 2000, when chip sales grew 38%.
Wedbush Morgan Securities analyst Patrick Wang said he has a “positive thesis” on Microsemi, despite its mediocre results and forecast last week.
He said he expects “solid revenue growth” plus profit gains boosted by cost cutting this year. Microsemi closed a Scottsdale plant and moved some manufacturing to the Philippines last year.
Restructuring has boosted Conexant, which has been working on a turnaround for the past year or so.
Last week, the company reported an adjusted profit of $10 million, up from a loss of $21 million a year earlier. Analysts were looking for $7 million in profits.
Sales were $62 million, up 9% from and beating analysts’ expectation of $60 million in revenue.