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Chipmakers And Design Wins

Posted on Tuesday, Feb 2nd 2010

The year that just ended was one of the worst ever for the semiconductor industry, with revenue declining 11.4% to $226 billion. However, last quarter Texas Instruments (NYSE:TXN), STMicroelectronics (NYSE:STM), and Atheros (NASDAQ:ATHR) all reported results that were indicative of a recovering semiconductor market. While for TI and Atheros the outlook was strong, STM was more cautious.

Texas Instruments, which has about 4.2% of the semiconductor market, reported a better-than-expected fourth quarter last week, led by 27% growth in Analog and the return of demand from Industrial markets. Q4 revenue was up 21% y-o-y and 4% q-o-q to $3 billion. Net income was $655 million or $0.52 per share. For the full year, revenue was down 17% to $10.43 billion and net income was down 23% to $1.5 billion, or $1.15 per share. Q3 analysis is available here.

Gross margin increased to 52.9% from 44% last year. The company ended the quarter with $2.92 billion in cash. For the full year, Analog revenue was down 12% to $4.3 billion. Embedded Processing revenue declined 10% to $1.5 billion. Wireless business revenue was down 24% to $2.56 billion. Other revenue was down 15% to $2.13 billion.

Analog revenue in the quarter was up 27% y-o-y and 9% q-o-q to $1.3 billion, mainly due to strength in power management and high-volume analog & logic. Embedded Processing revenue increased 21% y-o-y and 5% q-o-q to $412 million mainly due to higher catalog and automotive product revenue. Wireless business revenue was up 13% y-o-y and 8% q-o-q to $732 million owning to strength in connectivity products and applications processors. TI’s baseband business, which it plans to phase out by 2012, was about even with last year but increased sequentially.

TI said that it has gained share in the form of more customers. The company has landed about four chips in Motorola’s Droid, including a $13 OMAP chip, while in the recently introduced Nexus One from Google, it does not have more than $2 worth of chips. On the other hand, Qualcomm has design wins worth $30.50 for its Snapdragon chip in Nexus One and $14 for its baseband processor/radio frequency chip in Droid. TI’s customers also include Nokia, Samsung, and Sony-Ericsson. TI dominates the market for standalone applications, but its OMAP line is under increasing pressure from No.2 Samsung, which provides the application processor for iPhone while TI has design wins for Palm Pre, Droid, and Omnia. The iPhone has been a clear game-changer, and TI is having to fight harder to hold its position. TI recently won the design for an OMAP-based application processor in Dell’s new Latitude-On mode in notebook PCs. The Latitude-On concept, which provides access to the Web, contacts, and calendars without the lengthy boot cycle, targets smartphone users. If it gains acceptance, it would be a shot in the arm for TI.

At the recent CES, TI and Marvell launched e-reader platforms. TI’s platform includes its new 45nm OMAP 3621 applications processor and the new power management chip for electronic paper display (EPD) that supports 3G modem connectivity. TI said that more than 10 e-reader manufacturers are using its platform to develop new devices that are expected to be available before the year is out. Apple of course recently launched the iPad, which is an e-book reader, iPod Touch and tablet PC rolled into one. Apple’s history of stimulating consumer demand with its innovative products only intensifies hopes that it will reinvent the way media is sold and consumed .If e-readers gain mass acceptance, TI’s latest innovation will pay off.

TI expects first-quarter earnings of $0.44 to $0.52 on revenue of between $2.95 billion and $3.19 billion. Analysts estimate Q1 earnings of $0.44. The stock is currently trading around $22.5 with market cap of about $28 billion. It hit a 52-week high of $27 on December 4.

Chart for Texas Instruments Inc. (TXN)

STM, which has about 3.7% share of the semiconductor market, reported its fourth quarter results last week. Q4 revenue was $2.58 billion, up 13.6%, and net loss narrowed to $70 million or $0.08 per share from a loss of $366 million or $0.42 per share lat year. Analysts expected loss of $19.8 million on revenue of $2.47 billion. For the full year, revenue was down 13.5% to $8.5 billion from $9.84 billion in 2008. Q3 analysis is available here.

Gross margin increased to 37% from 31.3% last quarter due to higher volumes, increased fab loading, and improved efficiencies. STM continued to lower its costs through its $1 billion plan that was about 75% complete at the end of 2009. In December, the company expanded its restructuring plan to aim for additional annualized savings of $115 million. STM ended the year with a net cash position of $420 million, up from $266 million last quarter.

Revenue increased in all regions except Japan on a y-o-y basis and in all segments except consumer and industrial. ACCI (Automotive/Consumer/Computer/Communication Infrastructure Product Groups) revenue increased 17% q-o-q to $997 million, mainly driven by automotive, set-top boxes, and computer peripherals. IMS (Industrial and Multisegment Product Sector) revenue increased 23% q-o-q to $854 million, driven by strong growth in microcontrollers, analog, smartcards, and power discretes. Wireless segment revenue, which includes the results of ST-Ericsson, was up 1% q-o-q and 24% y-o-y to $712 million, driven by continued demand in China.

For the full year, revenue from ACCI declined 22.5% to $3.2 billion, IMS declined 20.7% to $2.64 billion, and wireless increased 27% to $2.58 billion. Among the major design wins in the wireless segment, LG Electronics selected ST-Ericsson’s mobile HSPA (High-Speed Packet Access) broadband modem, M340, to power the LG GW990 mobile Internet device, which is to be launched in the second half of 2010. Also, STM announced a long-term partnership with Nokia for technology and solutions in the area of TD-SCDMA, a 3G mobile communications standard in China.

For the first quarter, STM provided a cautious outlook. It expects a sequential net revenue decrease of between -7% and -13% or positive 35% to 45% y-o-y growth. Gross margin is expected to be about 37.5%, plus or minus 1 percentage point due to better manufacturing loading and efficiency and an improved product mix. The company is currently trading around $8 with market cap of about $7 billion. It hit a 52-week high of $10.28 on October 14.

Chart for STMicroelectronics NV (STM)

Chipmaker Atheros also reported a strong fourth quarter last week. Q4 revenue was up 89% y-o-y and 19% q-o-q to $185.7 million, beating analyst estimates of $174.68 million. Net income was $15.6 million or $0.24 per share, compared to net loss of $4.8 million or $0.08 per share last year and net income of $38.6 million or $0.60 per share in the previous quarter. Revenue in 2009 was $542.5 million, up 15% from $472.4 million in 2008. Net income in 2009 was $46.4 million or $0.73 per share compared to net income of $18.9 million or $0.30 per share in 2008.

Non-GAAP gross margin was 50.2%, compared to 48.4% in Q309 and 49.2% in Q408. The company ended the quarter with $340.6 million in cash, up $51.8 million from Q109. Non-GAAP net income was $41.2 million or $0.62 per share versus analyst estimates of $0.53 per share.

The PC segment, accounting for 36% of revenue, grew 8% q-o-q. The networking segment, accounting for 43% of revenue, grew 32% q-o-q while the consumer segment, accounting for 21% of revenue, grew 14% q-o-q. The revenue breakdown hasn’t changed much from Q4 2008: networking at 45% of revenue, PC OEM at 35%, and consumer at 20%.

For Q1, Atheros expects revenue of $195 million to $205 million, with non-GAAP EPS of $0.48 to$0.52 versus analyst estimates of earnings of $0.38 on revenue of $158 million. The company expects gross margins to fall to between 48.5% and 49.5%, down slightly from 50.2% in the fourth quarter due to a seasonal decline in consumer segment and a flat to slightly down personal computer segment. Atheros expects the decline in the consumer and PC segments to be offset by strong growth in its networking segment due to the addition of about $20 million revenue from its powerline communications technology thanks to its $244 million acquisition of Intellon, which makes chips that turn domestic electrical networks into conduits for broadband.

Atheros recently introduced many new products including AR1520, the third-generation, single-chip GPS receiver; AR6003, the world’s smallest Wi-Fi chip with its integral power management unit and linearized power amplifier and more importantly AR6133, the WLAN and Bluetooth Radio-on-Chip for mobile devices, eBook readers, portable media players (PMPs), and smartbooks.

Atheros recently shipped its 100 millionth Ethernet chip. It has Gigabit and Fast Ethernet designs with eight leading PC manufacturers including Dell and HP, the top five home networking equipment manufacturers, and many tier-one carriers. Atheros recently announced the AR8151 and AR8152, designed to reduce overall system energy consumption. AR8151 is the industry’s smallest and greenest Gigabit Ethernet (GbE) controller and is among the first to comply with the latest IEEE 802.3az Energy Efficient Ethernet draft specification.

Atheros is set to gain momentum from its new products with wi-fi/Bluetooth and Ethernet chips leading the way. However, it also faces stiff competition from the likes of Broadcom. Broadcom beat Atheros to a design win in iPhone 3GS and recently in Google’s Nexus One.

For investors, the stellar quarter was not enough to offset the weak outlook, and Atheros’s shares slid to about $32 from a 52-week high of $36.96 on January 8. Market cap is about $2 billion.

Chart for Atheros Communications Inc. (ATHR)

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Thanks for the nice and informative roundup of recent events.

Nalini Kumar Muppala Tuesday, February 2, 2010 at 5:28 AM PT