Tech Earnings Get Off Poorly For Summer Earnings Season (NVLS, MCHP, KLAX, LRCX, AMAT, TXI, ADI, SMH)

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Many investors probably consider that it will be the larger technology companies which will kick off the bias for technology this earnings.  Guess again.  Technology is now already under a negative cloud as earnings season gets underway due to reports from Novellus Systems, Inc. (NASDAQ: NVLS) and Microchip Technology Inc. (NASDAQ: MCHP).  Neither are really considered to be sector leaders by investors but they were first out of the chute and these are setting up a cloud for chip cap-ex players and for microcontrollers and analog chips.

Novellus Systems, Inc. (NASDAQ: NVLS), the chip equipment and cap-ex player, managed to beat earnings but revenues were soft as the sales were down about 15% to $350.2 million with earnings coming in at $0.79 EPS.  We had estimates from Thomson Reuters of $0.76 EPS and $352.3 million.  That is not such a bad miss on revenues in the current climate, but Novellus said that bookings were down some 25% from the first quarter at $312 million and shipments fell by about 5% to $376.9 million.  The company said that its customers remain cautious and it also expects bookings to continue to fall as PC shipments are soft.  Its guidance for the coming quarter is now $0.60 to $0.75 EPS on $300 to $340 million in revenues, but Thomson Reuters had estimates of $0.86 EPS and $359.7 million in revenues.  Novellus is only a $3.5 billion market cap and its shares are down 5.6% at $33.75 in the after-hours.  Here is how peers in chip cap-ex are being hit:

  • KLA-Tencor Corporation (NASDAQ: KLAC) -3% at $40.99 in after-hours $7B market cap);
  • Lam Research Corporation (NASDAQ: LRCX) -2.5% at $43.76 in after-hours ($5.5B market cap);
  • Applied Materials Inc. (NASDAQ: AMAT) -0.5% at $12.90 indications ($17B market cap).

Microchip Technology Inc. (NASDAQ: MCHP) confessed after the close that its sales be about $373.3 million for the quarter, down about 1.5% sequentially and down from a prior forecast for a gain of 1% to 5% sequentially, as its sales activity did not progress as well as expected.  Non-GAAP earnings were put at $0.53 to $0.55 EPS rather  than the prior range of $0.58 to $0.62 EPS.  More importantly, the company is seeing a broad weakness due to auto businesses and due to an inventory correction after Japan’s quake and tsunami.  The company also cited a weaker global economic condition and less-robust computing sector sales. The company is now targeting the September quarter sales to be lower sequentially by the low- to mid-single digits.  Microchip Tech is a $7 billion market cap company and its shares are down by 7.4% at $34.70 in the after-hours.  Here is how some larger peers in chipland are holding up:

  • Texas Instruments Inc. (NYSE: TXN) -1.6% at $31.90 ($37B market cap);
  • Analog Devices Inc. (NYSE: ADI) -2.6% at $37.52 ($11.5 billion market cap).

On a broader note, the Semiconductor HOLDRs (NYSE: SMH) is down about 1.5% at $33.66 in the after-hours session and that is after a 1.4% drop in regular trading today.  Its 52-week range is $24.14 to $36.99.

These two companies today will not likely dominate earnings season entirely for technology and chip stocks, but they are early reporters and the comments may be interpreted in other aspects of tech as well.  Some of the larger companies may not be seeing the same news.  Still, these were the first reports for earnings season in the world of semiconductors and it is setting at least an overall cautious tone for the sector.

JON C. OGG