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Semiconductor Stocks See Light

Posted on Monday, Jan 4th 2010

The year just ended must have been one of the worst for the semiconductor sector. However, the recent strong earnings results from Infineon, Micron, and National Semi indicate that 2010 may be more promising.

Nalini Kumar Muppala recently provided a detailed analysis of Infineon. In the post Wireless Strengths, he points out that Infineon is a formidable force in radio frequency (RF) transceivers and is ranked third in the total baseband (2G, 3G) market. The company’s design wins in the iPhone helped to increase its visibility although it has been a longtime supplier of RF solutions to LG, Nokia, Samsung, and Sony-Ericsson.  However, it still has some holes in its wireless portfolio, especially in the area of connectivity solutions, which are playing a major role in the convergence trend. Another important piece of a mobile phone that is absent from Infineon’s portfolio is the application processor, and the company should form partnerships to close these holes and provide complete platform solutions. Nalini concludes in Wireless Strategy and Outlook that Infineon should leverage its reach with top handset makers like Apple and RIM in the future.

Let us now look at its financials. Infineon Technologies AG (OTC:IFNNY.PK) recently raised its guidance for the first quarter driven by the automotive (ATV) and Industrial and Multimarket (IMM) segments. For the fourth quarter ended on September 30, 2009, Infineon reported revenue of €855 million, up 12% q-o-q but down 18% y-o-y to and net income of €14 million versus net loss of €884 million last year. Infineon completed the sale of its Wireline Communications business to Lantiq, affiliates of Golden Gate Private Equity on November 6 for about €243 million. Infineon had earlier divested Qimonda in the second quarter. Q3 coverage is available here.

The company’s Wireless Solutions (WLS) segment reported Q4 revenue of €265 million, down 7% y-o-y but up 5.5% q-o-q. IMM revenue declined 21% to €257 million while ATV revenue declined 24% to €238 million.

In fiscal year 2009, revenue declined 22% to €3.02 billion and net loss was €671 million versus €3.747 billion. Infineon managed to improve its performance in the second half of the year with its IFX10+ cost-reduction program. The company ended the year with 25,650 employees and had a net cash position of €657 million versus net debt of €287 million in 2008.

Infineon now expects high single-digit sequential growth in group revenues and high single-digit margin for the Combined Segment Result. In its previous outlook, the company expected revenues and Combined Segment Result to be at the same level as in the fourth quarter. The stock is currently trading around $5.5 and hit a 52-week high of $5.90 on October 20.


Last month, National Semiconductor (NYSE:NSM), a leader in analog power management technology with annual revenue of about $1.46 billion, reported second quarter revenue of $345 million, down 18% y-o-y but up 10% q-o-q driven mainly due to increased demand in industrial markets. Net income was $47 million, or $0.20 per share, versus net income of $36.3 million, or $0.16 per share last year. Analysts expected earnings of $0.14 per share on revenue of $336.7 million. Q1 coverage is available here.

Gross margin improved to 65.3% from 61.1% last quarter due to a stronger product mix, higher sales volume, and lower manufacturing costs. The company ended the quarter with $822 million in cash and paid down about $16 million of its debt principal.

Revenue from the industrial market increased 17% q-o-q, accounting for 40% of revenue. Communications and networking sales grew 11% q-o-q, accounting for about 11% total revenue. Sales to the mobile device market were flat over the previous quarter and accounted for 30% of total sales. The company’s power management business, accounting for 50% of revenue, grew 12% q-o-q.

A power management growth area in the quarter was National Semiconductor’s LED business, for which sales doubled sequentially. Seventy percent of these sales was to customers in China, and NSM expects the LED lighting business to be a potential $100 million per year revenue opportunity in about three years. Another power management growth area is the renewable energy sector, and NSM aims to be the power electronics leader in the power efficiency communications and monitoring capability. In October, NSM bought Energy Recommerce to add power monitoring and management software to its solar portfolio. Earlier in the year, it bought Act Solar to extend its solar energy efficiency and management capabilities.

NSM expects Q3 revenue to be flat, as opposed to its typical seasonal pattern of being down in Q3. The stock is currently trading around $15 with market cap of about $3.5 billion. Its 52-week range is $9.06 to $16.20.

Chart for National Semiconductor Corporation (NSM)

Last month, Micron Technology, Inc. (NYSE:MU), the memory chipmaker with annual revenue of $4.8 billion, reported first quarter revenue of $1.74 billion, up from $1.4 billion last year. It swung to a profit of $204 million or $0.23 per share from a loss of $100 million or $0.12 per share last year. Analysts expected earnings of $0.06 per share on revenue of $1.6 billion. Q4 analysis is available here.

Micron said that revenue from its DRAM products rose 50% from the previous quarter, while sales of NAND Flash products rose 21% sequentially, both due to higher sales volumes and average selling prices. Revenue from sales of DRAM products increased 50% sequentially due to a 25% increase in DRAM sales volumes and a 21% increase in ASPs. Revenue from sales of NAND Flash products increased 21% sequentially due to a 16% increase in NAND sales volumes and a 5% increase in ASPs. However, imaging revenue declined 12.2% sequentially.

The rising prices led to gross margin improving to 27% from 12% in Q4. Micron generated $326 million in cash flows and ended the year with $1.6 billion in cash and investments. The stock is currently trading around $10.5 with market cap of about $9 billion. It hit a 52-week high of $10.66 on December 30.

Chart for Micron Technology Inc. (MU)

Overall, all the three companies posted strong results and the outlook is more promising than before. According to a recent report from Gartner, semiconductor revenue in 2009 declined 11.4% to $226 billion. For two years in a row, the industry posted revenue declines; the decline in 2008 was 5.4%.  However, this is set to change, and Gartner in an earlier report said that it expects semiconductor revenue to bounce back to 2008 levels. The light at the end of this dark tunnel is finally there.

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