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7/21/2006
04:22 PM
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Weak Microprocessor Market Dampens Earnings Picture

Mixed signals abound, from Intel cutting its capital spending outlook for the second half of the year to AMD expressing cautious optimism that second-half sales and earnings would show what the company defined as "seasonal improvement."

MANHASSET, N.Y. — Like the lazy days of summer, it has been a somewhat lackluster season so far for the electronics industry, judging from early earnings results that ranged from poor to strong.

Much of the attention over the past week has focused on poor second-quarter showings for microprocessor suppliers Intel Corp. and AMD Inc., both of which saw sales and earnings decline from the first quarter. Both companies attributing falling prices and slumping processor sales for the poor results.

However—perhaps indicative of the companies' fortunes for the first half of the year— the companies issued somewhat divergent second-half forecasts. Intel cut second-half capital spending in perhaps an ominous sign for the semiconductor equipment industry. AMD did not, and expressed cautious optimism that second-half sales and earnings would show what the company defined as "seasonal improvement".

Signals from elsewhere in the industry remain mixed. The Semiconductor Equipment and Materials International (SEMI) trade group, which said the fab tool book-to-bill ratio was flat in June in the U.S., though rose substantially for Japan.

But not-so-good news came from Singapore foundry company Chartered Semiconductor Manufacturing Pte. Ltd., which despite a strong second quarter issued a lackluster third-quarter forecast, which the company attributed to soft game machine sales. Chartered makes chips for Microsoft Inc.'s Xbox game-machine lines.

Sales for other semiconductor suppliers were also a mixed bag. Infineon Technologies AG saw sales rise and significantly reduced losses year-over-year. However, sales were flat with the previous quarter, which the company attributed to declining sales in Infineon's communications division.

Cypress Semiconductor Corp. saw sales and earnings rise over the previous quarter, but Fairchild Semiconductor saw sequential sales and earnings drop.

Continuing what has been an upward trend, mobile phones sales continue to boom, with handset vendors Nokia and Motorola posting strong results, as did handset chip supplier Qualcomm Inc.

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