Shares of Texas Instruments (TXN) and Altera (ALTR) are sliding this morning, but not to an extreme degree, after the two last night surprised chip analysts by cutting their respective outlooks for the current quarter, both citing a slowdown in orders across all parts of the world, largely fueled by macroeconomic worries.
TI shares are down 60 cents, or 2%, at $29.29, while Altera’s are down 34 cents, or 1%, at $35.14, in a market that is solidly on the rise this morning.
The Street is divided between those who will take the companies at their word, that what we’re seeing is a process of the chip industry clearing an inventory build-up, and those who believe such talk is either wishful thinking or premature at best:
Mark Lipacis, Jefferies & Co.: Reiterates a Buy rating on both TI and Altera. As far as Altera, it’s nothing more than waiting till excess inventory is flushed out, he thinks: ” Jefferies comm-infrastructure analyst George Notter continues to expect North American Telco CapEx to re-acclerate in 1H12, and Jefferies China TMT analyst Cynthia Meng expects 2012 China Telco CapEx to be similar to the 2011 level. Our proprietary analysis of YoY semiconductor revenues compared to OEM revenues suggests supply chain inventories would decline in 4Q11 for the third consecutive quarter, increasing upside potential from a restocking cycle.” And TI could see a sharp rebound: ” While cycle analysis 101 tells us to own integrated semi manufactures that recognize revs on sell-into the channel as the cycle is bottoming, most have been surprised at the pace at which TXN bounced off the bottom in the past. In 2003, TXN��s EPS increased from $0.07 to $0.29 in three quarters, while in 2009 it increased from $0.07 to $0.52, also in 3 quarters. TXN is starting from a higher base, but we suspect analysts will underestimate the leverage off the bottom, as we usually do.”
Vernon Essi, Need! ham & ; Co.: Reiterates a Buy rating on TI but cut his price target to $31 from $35. Though a rebound could come, it’s going to be tough for investors to believe in it at the moment: “Distributors and OEM customers continue to be reticent to take on inventory yet TI’s internal buffers are running ahead to be poised for upside (if it occurs but there is no definitive sign this is the case). This news will be met with pessimism as many investors jumped the gun on a bottom.”
Joanne Feeney, Longbow Research: Reiterates a Neutral rating on TI shares and cut her 2012 EPS estimate, on a non-GAAP basis, to $2.30 from $2.55. It’s just not clear how much of this is an inventory cycle and how much a breakdown in demand, she writes. “TI is under-shipping demand but the mix between inventory decline and further end-demand weakening remains unclear.”
Bobby Burleson, Canaccord Genuity: Reiterates a Hold rating on both TI and Altera, and cuts his price target to $28 from $30 for TI while maintaining a $33 target on Altera. TI’s ability to navigate the current inventory correction is made more difficult by an overlap in analog chips with National Semiconductor, which TI acquired this year. As for Altera, “In our view, inventory build at customers following the Japan disaster is exacerbating the effects of the current inventory correction.”
Romit Shah, Nomura Equity Research: Reiterates a Reduce rating on TI shares and a $22 price target. “We recognize that TI has tremendous earnings leverage in a recovery but would encourage investors to wait for a better buying opportunity in the February/March time frame. That’s when we see the inventory correction fully behind us, seasonality will turn more favorable, and 2013 estimates will become more relevant. And at a current multiple of 16x our 2012E EPS, we believe investors can afford to be patient.”
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