By William Trent, CFA of Stock Market Beat
We have written once or twice… per week… about what we have seen as a rising risk of overcapacity at the semiconductor companies. Some people have written it off to preparations for holiday sales.
“Inventories have risen both at semiconductor manufacturers and in the channel in recent months, but remain in line with requirements for the holiday build season,” [SIA President George] Scalise concluded.
Others have said we just don’t get it.
“Technology is a tool and nothing more. Technology is an enabler. Technology in and of itself is not a business. Technology cannot succeed without needed applications.”
The required business formula seems to be Technology + Applications = Probable Success.
Well, we guess somebody forgot to design the applications, because National Semiconductor has an inventory problem, according to TheStreet.com.
In keeping with its warning to the Street last month, the Santa Clara, Calif., chipmaker said Thursday that its revenue and profit both declined in its fiscal second quarter.
And the company projected that sales in the current quarter would be down sharply from analysts’ expectations, as bookings in its second quarter plunged 16% sequentially.
That pushed the company’s shares down 3.5%, or 88 cents, to $23.92 in extended trading.
National Semi pointed to the continuing inventory build in its distribution channel, which has caused distributors to hold off on chip purchases in recent months.
This wasn’t really all that hard to predict. As we have noted repeatedly, the semiconductor industry has been ordering equipment that will build many more chips than are needed. As this equipment gets installed (a process just now beginning) the extra capacity will result in higher inventory. Then prices will fall in order to clear out the inventory. Then things will get better again. It happens every couple of years in the semiconductor industry.
Until it does, expect more earnings misses and disappointing guidance.
The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: FedEx (FDX) put options; Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion’s Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Ceradyne (CRDN) put options; Lion’s Gate (LGF) call options; Dell (DELL) put options; Plantronics (PLT) put options
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