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Chip Sector Shrinks: BRCM, TI, STM

Posted on Monday, Feb 2nd 2009

The semiconductor industry is gloomier than ever, with demand weakening further in the fourth quarter. Texas Instruments (TI) and STMicroelectronics have announced 3,400 and 4,500 job cuts, respectively. Even leading semiconductor companies fell prey to the weakening demand with Qualcomm reporting a 56% slump in its profits and Broadcom reporting a loss in Q4 and announcing 200 job cuts. Let’s take a closer look at Broadcom, TI, and STMicro.

On January 29, Broadcom Corp (NASDAQ: BRCM) reported its Q4 and 2008 results. Q4 revenue was $1.127 billion, up 9.7% y-o-y and down 13.2% q-o-q including $40 million in royalty from Verizon. Net loss was $159.2 million or $0.32 per share versus net income of $90.3 million, or $.16 per share last year and $164.9 million, or $0.31 per share last quarter. Wall Street’s estimate was earnings at $144.2 million, or $0.27 a share on sales of $1.1 billion.

Broadcom wrote down $169.4 million related to the goodwill and assets of its mobile platforms business group, and posted a charge of $31.5 million for in process R&D charges for the AMD digital TV acquisition.

In Q4, cash flow from operations was $146 million. The company bought back shares worth $424 million. Cash and marketable securities balance decreased $390 million to a balance of $1.9 billion at the end of the quarter.

Though Q4 was weak, Broadcom had on the whole a strong 2008. For the full year, revenue increased 23.3% to $4.658 billion. Net income was $214.8 million, or $0.41 per share versus $213.3 million, or $0.37 per share in 2007. Gross margin, including Verizon royalties, was 50.5%, down about 180 basis points from last year. The company also generated $920 million in cash flow from operations.

Broadcom expects Q1 revenue to decline to about $800 to $875 million, including Verizon royalties of $19 million. Gross margin is expected to decline to 49%. Analysts expected revenue of $950 million for Q1 and gross margin of 51%. Broadcom announced a 3% cut in its workforce, equivalent to 200 jobs. In its earnings call, the company said its goal in the current economic crisis is to protect its cash flow above $75 million per quarter throughout 2009 and to invest its R&D dollars in the right areas to drive market share gains. The stock is currently trading around $16 with a market cap of about $8 billion. It hit a 52-week low of $13.52 on October 10.

Chart for Broadcom Corp. (BRCM)

On January 26, Texas Instruments (NYSE: TXN) reported its Q4 and full year 2008 results. Q4 revenue was down 30% y-o-y and 26% q-o-q to $2.49 billion. Net income declined 86% to $107 million or $0.08 per share. Excluding restructuring charges of $0.13 per share, EPS would have been $0.21. Despite the drastic declines in revenue and profits, TI beat analyst earnings estimates of $0.12 per share on revenue of $2.37 billion.

By segment, Analog revenue declined 22% y-o-y and 21% q-o-q to $1.01 billion. Embedded Processing declined 21% y-o-y and 20% q-o-q to $0.34 billion. Wireless revenue declined 42% y-o-y and 29% q-o-q to $0.65 billion mainly due to lower baseband revenue. Last quarter TI had announced plans to sell its baseband business but has failed to find a buyer. It has therefore decided to run baseband internally as an end-of-life business.

Orders were $1.86 billion, down 47% y-o-y and 42% q-o-q while inventory was down $200 million in Q4, lowering the average utilization to 48%, down by about 20 points from Q3. Gross margin was down to 44%. Capital expenditure was $76 million, down from $181 million in Q4 2007 and $197 million in Q308. TI bought back shares worth $386 million in the quarter and paid dividends of $141 million. Cash flow from operations increased to $1.11 billion in the quarter due to lower working capital requirements, and the company ended the quarter with $2.54 billion in total cash.

For the full year, TI’s revenue declined 10% to $12.5 billion, mainly due to lower Wireless revenue. Net income was down 27% to $1.9 billion or $1.45 per share. It bought back shares for $2.12 billion in the year and paid dividends of $537 million.

For Q109, TI expects revenue in the range of $1.62 to $2.12 billion and EPS in the range of a loss of $0.11 to a profit of $0.03 per share. It has announced that it will reduce its workforce by 12%, or 3,400, and would be saving about $500 million annually. It expects its factory utilization to come down further to 35%. It also expects to reduce capital expenditure by more than 60% to $300 million and R&D spending by about 23%, to $1.5 billion. These cost reductions are focused on non-core product areas and internal support functions. The company will continue to invest aggressively in analog and embedded processing as well as customer support. The stock is currently trading around $15 with a market cap of about $19 billion. It hit a 52-week low of $13.38 on December 5.

Chart for Texas Instruments Inc. (TXN)

On January 28, STMicroelectronics (NYSE: STM) in its Q4 and full-year 2008 results reported a loss in Q4 as demand weakened due to the global economic crisis. For the full year, revenue was $10 billion, down 1.6%. Excluding FMG and NXP Wireless, net revenue grew 4.8%.

Q4 revenue was $2.28 billion, down 17%. Net loss was $366 million or $0.42 per share versus net income of $20 million or $0.02 per share. Excluding charges, net loss was $57 million or $0.06 per share. Analysts estimated a loss of $39 million on sales of $2.27 billion.

Gross margin in Q4 excluding the inventory step-up from the addition of NXP Wireless increased to 37.1% of net revenues, compared to 35.4% in 2007. Net cash from operating activities was $388 million versus $414 million last quarter. Net operating cash flow was $153 million. For the full year 2008, net cash from operating activities was $1.72 billion compared with $2.19 billion in 2007 and net operating cash flow was $647 million excluding $1.69 billion paid for M&A transactions. At the end of 2008, ST’s cash and cash equivalents was $2.15 billion. Total debt was $2.70 billion. In Q4, it repurchased $82 million of common stock and paid $79 million in dividends.

By segment, the Automotive, Consumer, Computer and Telecom Infrastructure Product Group (ACCI) revenue declined 16.6% y-o-y and 17.2% q-o-q to $0.9 billion. The Industrial and Multisegment Sector (IMS) declined 6.5% y-o-y and 12.2% q-o-q to $0.8 billion due to a decline in multisegment market conditions except in MEMS, Smartcards and Microcontrollers. Wireless Product Sector (WPS) revenue declined 29.6% y-o-y and 17.4% q-o-q to $0.57 billion.

STM has not provided any formal guidance. For internal purposes, it is planning for revenue in the range of $1.5 to $1.85 billion and gross margin to be in the mid to high 20s as a percentage of sales. The company has set a capex budget of $500 million in 2009, 50% less than in 2008. It also announced its plans to lay off 4,500 employees, which would help save $700 million annually. The stock is currently trading around $5 with a market cap of about $4.5 billion. It hit a 52-week low of $5.08 on January 23.

Chart for STMicroelectronics NV (STM)

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