Bracing For Data From 3 More Chip Stocks (TXN, NSM, ALTR)

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Today may be a fairly important news day after the close for semiconductor stocks.  We have a mid-quarter update from Texas Instruments Inc. (NYSE: TXN) and an earnings report from National Semiconductor Corp. (NYSE: NSM).  After the close we should also get a mid-quarter update from Altera Corporation (NASDAQ: ALTR). As you can imagine by the recent market and the slate of warnings from technology companies, the expectations have already been brought down. The question is how much softer data that traders are willing to accept.

Texas Instruments (NYSE: TXN) is the largest name with news today, and the mobilechip operator has its mid-quarter update coming out after the close.For the fourth quarter of 2008, the company said with its last earningsreport that it expected revenue to be between $2.83 and $3.07 billionand it said earnings would be in a range of $0.30 to $0.36 EPS.  ItsEPS estimate did include a $0.05 benefit from the reinstatement of thefederal research tax credit, and it also included charges of about$0.01 per share associated with the company’s restructuring actions inits Wireless business. 

We would note that Thomson Reuters (First Call) has estimates at $0.31EPS on $2.91 billion in revenues.  These numbers have come downsubstantially in the last 90 days when so many companies have beenwarning.  Even with a small gain to $14.69, this is at the bottom ofits 52-week trading range.  The stock is at $13.38 to $34.60.

On a more detailed basis, it said that Semiconductor revenue woulddecline in the range of 10% sequentially and Education Technology isexpected to decline seasonally.

National Semiconductor (NYSE: NSM) is expected to report earnings rightafter the close.  It is expected to see $0.21 EPS and $427.32 millionaccording to the Thomson Reuters consensus numbers.  For the quarterahead, it is expected to post $0.16 EPS and $385 million in revenues.Next quarter’s consensus numbers have also been brought downsubstantially over the last 90 days.

The market is already braced for a very cautious outlook as shares aredown roughly 3% today.  The stock is at $9.96 and the 52-week tradingrange is $9.02 to $24.96. 

Altera Corporation (NASDAQ: ALTR) is giving its mid-quarter updatetoday.  It gave prior guidance of -3% to +1% sequentially for revenues,and that would be an implied $346.1 to $360.3 million in revenues.Thomson Reuters (First Call) has estimates currently at $346.01 million(lowest estimates is $329+ million).  The estimates here have not comedown as much as elsewhere.  Altera had also given a forecast of 68%gross margins +/- 0.5%.

Wall Street has to already assume the worst here that earnings guidancewill stink from all three companies.  They are in chips.  Their peershave almost all guided lower.  The cell phone makers have all broughtin expectations.  PC makers have been cautious for the most part.  Weknow that technology spending estimates for 2009 have been brought insubstantially.  But there is one steady theme here that has not beenbroken and it is something that would come as an even worse shock ifcomes out or gets used for guidance:  LOSSES…….

Some of the estimates for future quarters still need to be brought downby analysts.  But so far all of the estimates ahead are still lookingfor these companies to be profitable and to generate positive cashflow.  The one thing that could cause another shock to the tech sectoreven at these low share prices would likely come about if any of themajor chip companies started to forecast actual losses rather thanearnings.  We aren’t saying that will happen, but if that does occurthen the old 52-week highs or recent highs are likely to become nothingbut a mere memory. 

Jon C. Ogg
December 8, 2008