Analysts Cautiously Eyeing Newport’s Chip Business
Western Digital’s Upward Revisions Get Noticed; Toshiba’s ‘Laptop’ Server Goes Wireless
TECHNOLOGY by Andrew Simons
Irvine’s Newport Corp. just sold off the rest of its old-line metrology, or measurement, businesses. But the maker of production equipment for fiber-optic gear and chips still seems to have a ways to go before it shows improvement, according to analysts.
In April, Newport unveiled plans to sell its metrology business. The division was one of Newport’s slowest growing,though with the chip and telecommunications downturn, it emerged as the company’s largest in the past year.
The sale has upped the emphasis on other parts of Newport’s business. But with semiconductor sales only slated to grow slightly this year (see related story, page 18), the prospects that chipmakers will order more production gear still are iffy.
“Most of the interest was in the semi side of the business for the obvious reason that there is improved order momentum there, as opposed to the possibility we are at a bottom for the optical unit,” said SoundView Technology Group analyst Kevin Slocum after a recent analyst conference. “There does seem to be a second-half story in semiconductor capital equipment, but we left with no new insights.”
In the first quarter, Newport lost $800,000 on sales from continuing operations of $44 million. In the fourth quarter, Newport’s income from continuing operations was $1.6 million on sales of $44.3 million.
Of particular concern to analysts: photonics,communications chips that process light signals.
Many makers of photonic networking gear have watched as their customers halted orders in the past two years. Corning Inc., which just opened a new plant in Fountain Valley, has been one of the hardest hit in the slowdown.
“We believe photonics customers remain cautious about spending on capacity,” Robertson Stephens analyst Sue Billat said.
Even so, venture backers have loved optical gear upstarts, dumping millions into local names such has Irvine’s OpVista Inc., Newport Beach-based Newport Opticom Inc. and Lake Forest-based VSK Photonics Inc.
Optical startups have been seen as a good prospect vs. Internet companies that have gone bankrupt in the past year. After all, at least optical gear makers were making products for which the demand was obvious: building a faster Internet.
And, eventually, corporate buyers of photonic gear will start spending money again.
Newport plans to be ready when they do, according to analyst Billat.
“We believe the comprehensive product line that Newport has built up should serve it well when capacity buying in photonics resumes,” she said.
Western Dig Gets Kudos
It’s been a while, but Lake Forest-based Western Digital Corp. is on Wall Street’s good side again. Research firm Zacks Investment Research recently tipped its hat to the disk drive maker.
“Even as PC giants like IBM have issued warnings, analysts are still bullish on Western Digital and have been revising earnings estimates up for future quarters,” a Zach’s report said. “Things are starting to look up and prices should follow if positive earnings revisions continue.”
That kind of praise is nothing like the pen lashings the company received a year ago, when it was trying to stem losses and preserve dwindling cash reserves.
Thanks to its cost-cutting efforts, Western Digital has turned two consecutive profitable quarters and consolidated its PC drive business.
The company also can point to its dealings with Microsoft Corp. last year as a reason to be optimistic for the future.
Western Digital struck a deal with the software giant to have its drives placed inside the new Xbox game console.
In time, Western Digital hopes to become the premier maker of drives for game consoles. When Sony Corp. and Nintendo Co. put hard drives in their game machines, Western Digital hopes it’ll be the first company they’ll go to.
Toshiba Goes Wireless
There’s a lot of hot air in technology marketing,specifically when it comes to wireless products. After all, standards for how to make products are diverse and disjointed.
But Irvine’s Toshiba Computer Systems Group has seemed to live up to hype this time.
The unit of Japan’s Toshiba Corp. recently unveiled a new server that can dish out data to computers via a wireless link known as Wi-Fi (short for wireless fidelity).
The server is about the size of a normal Toshiba laptop and can be packed up and carried around easily, allowing users access to a network when away from the office.
“Toshiba’s Magnia SG20 is the first wireless mobility server to deliver the right combination of features,” said Oscar Koenders, vice president product marketing for Toshiba’s computer unit.
Separately, Toshiba recently got the nod from researcher International Data Corp. for being the leading shipper of laptop computers.
“Over the past few months, Toshiba America has taken steps to position itself effectively for future growth,” said Roger Kay, an IDC analyst. “Management has fielded a strong product lineup, attractive technology bundles, and relevant services, which, given a renewed focus on mobility, should help the company sustain momentum.”
