Earnings Warning from Semiconductor Maker
Evidence that the U.S. economic slump is taking a toll on chipmakers came on Mar. 10 with a forecast of a sales-and-profit shortfall at Texas Instruments and news of a jump in stockpiles of unsold semiconductors.
Texas Instruments (TXN) said its first-quarter revenue and earnings won’t be as high as previously expected, citing disappointing wireless demand. That followed a Gartner Group (IT) report showing that semiconductor inventories rose to their highest level in two years in the last three months of 2007. “We started hearing rumors of a recession and indicators of a weak fourth quarter during the middle of 2007,” says Gartner analyst Gerald Van Horn. In the second half of last year, “we saw [inventories] rise on exuberant hopes for a strong holiday season. But the strong fourth quarter didn’t materialize.”
As a result, Gartner’s inventory index, which measures inventory throughout the chip industry’s supply chain, rose to 1.16 in the fourth quarter. According to the researcher, 0.95 indicates a slight shortage amid heavy demand, while 1.10 suggests slackening demand with a slight excess inventory. A higher reading falls into what Gartner calls the “caution zone,” where chipmakers should seriously consider cutting their inventory.
