Applied Micro Circuits Corp and PMC-Sierra Inc, communications-chipmakers whose third-quarter sales plunged as fast as they surged a year earlier, said a lingering inventory glut will delay a rebound in sales that analysts had expected in the fourth quarter.
Applied Micro Chief Executive David Rickey said sales will be unchanged from the previous quarter after the company said three months ago that revenue might rise 10 percent. PMC-Sierra Inc said revenue will fall as much as 27 percent in the fourth quarter. Both targets are lower than the average analyst estimate from Thomson Financial/First Call.
Customers that make telecommunications gear, such as Nortel Networks Corp and Cisco Systems Inc, are taking longer than previously forecast to work through a stockpile of chips as their phone-company clients reduce spending on equipment. Analysts expect such spending to fall further next year.
"Demand is nowhere near normal at this point," said Wachovia Securities analyst Karl Motey, who rates Applied Micro and PMC-Sierra shares "buy" and doesn't personally own them.
Applied Micro shares rose US$0.29 to US$10.61 on the NASDAQ and fell to US$10.44 in after-hours trading Thursday. PMC-Sierra rose US$1.09 to US$16.60, then dropped to US$15.02 in after-hours trading following the forecast. Both companies' stocks had plunged more than 87 percent in the past year.
Rickey said customers still have five months' worth of chip inventory on hand. President Doug Spreng said "this bottom might extend longer than originally expected." The prediction came after the San Diego-based company said it had a fiscal second-quarter loss as revenue tumbled 57 percent.
The loss was US$95.9 million, or US$0.32 a share, compared with net income of US$23.6 million, or US$0.90, a year earlier. Sales in the period ended Sept. 30 dropped to US$41.3 million from US$97 million.
Santa Clara, California-based PMC-Sierra said fourth-quarter revenue will range from US$45 million to US$55 million, compared with US$61.6 million in the third quarter and US$231.7 million a year earlier. The company plans to cut 350 jobs, or 24 percent of its workforce, to reduce costs.
"The inventory has to run out, and that will run out sometime next year," said PMC-Sierra Chief Executive Robert Bailey. "The risk is that capital expenditures of the service providers and the macroeconomic environment weaken further, driving down the end-product demand for our customers."
Bailey said WorldCom Inc, AT&T Corp, Sprint Corp and Qwest Communications International Inc would be telecommunications companies that are reducing equipment spending next year.
PMC-Sierra's third-quarter loss was US$34.5 million, or US$0.20 a share, compared with a loss of US$$34.6 million, or US$0.21, a year earlier.
Not all of the news among communications-chip makers was dire. Conexant Systems Inc of Newport Beach, California, said rising sales of its mobile-phone chips will help revenue "grow modestly" from the previous quarter.
In the unit that competes with Applied Micro and PMC-Sierra, though, business won't improve until "sometime in the first half of 2002," said Chief Executive Dwight Decker.
Nortel declined to give a sales forecast for the fourth quarter or next year.
Broadcom Corp, which makes chips for cable modems, cable-television set-top boxes and telecommunications equipment, said yesterday that fourth quarter sales will rise less than 5 percent from the previous period.
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