Chip Stocks Absorbing Warnings Rather Well (AMAT, AMD, KLAC, INTC, ASML, SMH)

We have two big chip warnings for the market to absorb today.  Interestingly enough, the market is absorbing these rather well if you take an ‘all things considered’ approach.  Applied Materials Inc. (NASDAQ: AMAT) has joined in with a movement of chip companies lowering guidance.  After the warning from Advanced Micro Devices, Inc. (NYSE: AMD) warning, perhaps this is no major surprise.  If chip sales are truly slowing, then you know that chip cap-ex has to slow.

The new guidance is for third quarter revenues to come in at the low end of prior guidance and its Fiscal 2012 revenues will come in below its prior guidance.  Earnings will be in the lower half of a $0.21 to $0.29 EPS range, with consensus being right in the middle.  For Fiscal 2012 Applied Materials is projecting earnings to come in under a range of $0.85 to $0.95 EPS versus $0.94 estimates.

Applied further noted that it expects that the demand changes could have a $0.15 to $0.20 per share impact on FY2012 non-GAAP earnings per share.  The company now expects that the calendar year of 2012 forecast for wafer fab equipment spending will be around $30 billion to $33 billion versus a previous expectation of $32 billion to $35 billion. While some of the guidance is not exact, the company will offer a new target range during its mid-August earnings conference call. Applied Materials shares are down 3.1% at $10.67 against a 52-week range of $9.70 to $13.74.

The news comes on a morning when rival KLA-Tencor Corporation (NASDAQ: KLAC) decided to announce that it would raise its dividend by 14% to $0.40 per share. KLA shares are down 1.3% at $45.05.

With two chip warnings out in the same period, it has to be pointed out that Intel Corporation (NASDAQ: INTC) is down only 0.25% at $26.11 against a 52-week range of $19.16 to $29.27. ASML Holding NV (NASDAQ: ASML) is up 7.6% at $52.10 after news that Intel was making a major investment in the company and that may be buffering some of the negative news in the chip sector.

Advanced Micro Devices, Inc. (NYSE: AMD) is down almost 6% at $5.30 against a 52-week range of $4.31 to $8.35, but that warning was atrocious as it sees an 11% sequential drop in sales rather than a 3% gain in sales.

Market Vectors Semiconductor ETF (NYSEMKT: SMH) is up 0.25% at $31.22 against a 52-week range of $28.86 to $36.17.  For two key warnings from leading chip players, that is impressive.

JON C. OGG