Linear Sends Another Signal

By William Trent, CFA of Stock Market Beat

Along with Intel (INTC), Linear Technology (LLTC) reported lower than expected earnings and guided for sales to drop in the coming quarter, compared with analyst expectations of an increase. As we noted when Linear missed last quarter, the company is representative of the overall industry’s problems. From the press release:

According to Lothar Maier, CEO, “We are seeing an overall reduction in our inventories at our end customers, which coupled with some general market weakness, has resulted in a decrease in bookings, sales and profits for the December quarter. The upcoming March quarter is a challenge to accurately forecast. Visibility continues to be low and customers remain guarded in their forecasting and inventory management. The March quarter has historically been strong for Linear due to seasonal strength in industrial markets. However, with inventory reductions expected to continue and low market visibility, this year we expect will be an exception. It is likely that improvements in Europe and the USA may be offset by slowness in Asia, particularly in consumer related markets. Consequently, we currently expect revenue to be down 4% to 7% with profits slightly more impacted primarily due to an increase in the tax rate. However, any increase in confidence in the overall business environment would positively impact this outlook.”

Furthermore, unlike Intel, Linear’s inventory continued to grow – up 8% sequentially even though sales were down. (Or perhaps because sales were down – if you don’t sell chips they stay in inventory.) Either way, it is a sign that the problem isn’t going away tomorrow. The news sent shares of other analog semiconductor makers such as Maxim (MXIM) down as well.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; FedEx (FDX) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Starbucks (SBUX) call options; Landstar (LSTR) put options; Ceradyne (CRDN) put options; Dell (DELL) put options; Plantronics (PLT) put options;

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