Globes, Tel Aviv, Israel, Shlomi Cohen column
Jul 16, 2012 (Globes - McClatchy-Tribune Information Services via COMTEX) --
After a week of a light drizzle of quarterly financials, we are now entering a week that will be flooded with results from leading technology, financial, and industrial companies. By the end of it, we will know whether expectations this time round were at floor level, and the situation is not really quite so terrible, or whether there's a cellar under the floor. In the technology sector, it all begins and ends with semiconductors, and it on these companies that I will focus today.
Among the fourteen semiconductor companies that will report this week, I will follow in particular the biggest of them all, Intel (INTC), which will report tomorrow, and the biggest Israeli company of them all in this field, Mellanox (MLNX), which will report on Wednesday, at the same time as Qualcomm (QCOM), which leads the mobile telephone processor market, and of course the only company that specializes solely in NAND flash chips, SanDisk (SNDK), which will report on Thursday. All four are due to report after the close.
At the beginning of the reporting season, the SOXX semiconductor stock index is 20 percent off its year-to-date peak, meaning that expectations have fallen considerably, especially of the guidance that will be provided for the third quarter. When the index was at its peak, in April, the consensus was that by the third quarter we would see a great wave of new computer purchases, as a result of the launch of Windows 8-based thin Ultrabooks. There were also those who hoped that the new iPhone would be on the market in the third quarter, but it now looks as though it will be launched only in October.
A slip-up in the relay race
Just as the baton sometimes get dropped in the changeover in a relay race, so also the switch from a relatively weak first half for semiconductors to a much stronger second half is not taking place without mishap. Windows 8 will reach the market only in October, deferring until the end of the year sales of the advanced Ultrabooks with contact screens, high graphic and security performance, low energy consumption, and boot-up in seconds. What is certain is that they will be the Christmas season hit, along with the iPhone 5.
Despite the expectation of a slowdown, it could well be that Intel will again spring a surprise tomorrow, and prove that in China, India and Brazil, demand for computers is higher than people think, because of the huge number of people being exposed to personal computers for the first time in those countries. In addition, Intel has server processors, which are enjoying positive momentum thanks to accelerated investment in cloud computing and Big Data solutions. At the end of the first quarter, the company launched its new server processor, the Romley, which will contribute to higher sales and margins later in the year.
It seems that Qualcomm will disappoint with its guidance, because of the shortage of processors, stemming from a lack of adequate production capacity in the 28-nano lines of its subcontractors. This is despite the fact that in smartphones, the third quarter will be especially strong for its biggest customer, Samsung. The latter is running wild with its Galaxy 3, in the absence of a new iPhone on the market. Samsung had a great second quarter, with figures released today showing that it sold 50 million smartphones, putting Apple into second place with 30 million units. The gap will probably widen even further in the third quarter, and it will be closed only in the fourth, when the new iPhone is launched.
It turns out that having their own semiconductor production lines is a huge advantage for Intel and Samsung, an advantage that will only grow as chips of all kinds become ever more complicated. By contrast, Qualcomm, which is dependent on investment that its subcontractors make or do not make, faces the risk that, within a few years, Intel will become a tough competitor in smartphone and tablet computer processors.
SanDisk investors lose faith
SanDisk undoubtedly had a very difficult first half, because major customers, such as Nokia (NOK), Research In Motion (RIMM), Motorola, Sony Ericsson, and others, failed to stand up to the tough competition from Apple and Samsung, in addition to which there was a substantial drop in price for flash chips and cards. The share price collapsed to a low of $31 from a peak of $53 early in the year, and although the company's management broadcasts incessantly the message that the second half will see a turnaround, investors don't believe it, as can be seen from today's share price of $33.
Besides the fact that SanDisk is one of the main beneficiaries of Samsung's success, because it collects royalties from Samsung on NAND chips, the big turnaround in the second half of the year can only happen if SanDisk succeeds in becoming a substantial supplier of flash solutions to both Samsung and Apple, significantly reducing its dependence on its traditional customers. This we will know on Thursday, according to the company's guidance for the third quarter.
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