With the onslaught of earnings revisions and reduced forecasts released in recent weeks, the second quarter is shaping up to be a big disappointment for communication IC vendors.
Despite assurances from some technology executives that inventory levels were beginning to come under control, weak demand and pricing pressures have prevented communication IC suppliers from reducing their inventories to normal levels. Some analysts now contend the inventory overhang will not be under control until next year.
"We believe it will take at least until the second quarter of 2002 before inventories return to normal levels," said Mark Lipacis, an analyst at Merrill Lynch & Co. Inc., New York, in a report.
Last week, Vitesse Semiconductor Corp. said it will post a net loss of 6 cents per share instead of a profit of 3 cents per share in its third fiscal quarter due to continued weak demand and order cancellations. Sales will reach only $60 million, compared with the $110 million Vitesse previously expected.
The company indicated that visibility at a majority of its customers continues to be poor.
"Inventories in our customers' channels remain at high levels, and the process of reducing excess inventories is taking much longer than anticipated," said Lou Tomasetta, president and chief executive of the Camarillo, Calif.-based company.
Although Vitesse does not expect any additional personnel reductions to help manage costs, other component suppliers have no choice.
When JDS Uniphase Corp., San Jose, revised its outlook in mid-June, the optical networking equipment manufacturer indicated that it was considering more job cuts, adding to the 8,000 positions lost earlier this year.
"It is likely that additional layoffs will occur, but there's been no specific announcement," said JDS spokeswoman Lori Goulet. "It's been an ongoing process based on individual business units."
JDS expects revenue for its fiscal 2000 fourth quarter, ended June 30, to be about $600 million, compared with its earlier guidance of $700 million. It expects revenue to decline even further, to about $450 million, for its fiscal 2002 first quarter, ending Sept. 29.
"This unprecedented miss reflects substantial inventory remaining at customers as well as stagnant end-demand fundamentals for optical networking equipment," said James P. Parmelee, an analyst at Credit Suisse First Boston Corp., New York. "Top-line visibility [is] limited, indicating gradual recovery will not emerge until some point during 2002."