The long-awaited bottom of the industry downturn may finally have been reached, if recent financial statements issued by key companies are any indication.
A host of companies, including Dell, Flextronics, and Intel, have confirmed their earlier forecasts for the current quarter, a refreshing change from previous quarters, when revenue and earnings projections were routinely downgraded as the market continued to deteriorate.
Although a recovery isn't in sight until sometime next year, many industry observers are hopeful that the announcements signal that demand has at least stabilized. Still, some cautioned that any uptick may represent a temporary seasonal improvement.
"Any time you get downcycles in the electronics industry, history shows that people massively miss their projections for two to three quarters. It takes that long to get rid of excess optimism and for normal market forces to find a new equilibrium," said Roger Norberg, an analyst at J.P. Morgan Chase & Co. in Minneapolis. "You can start to see we've found a bottom here."
A statement by Flextronics International Ltd.'s chairman and chief executive, Michael Marks, was typical of the recent trend. "We're comfortable with [our] guidance," he told analysts recently. "Overall, our expectations for this quarter and next are unchanged from the September quarter conference call."
Marks noted that the Singapore-based company has booked $800 million worth of annual revenue in new program wins so far this quarter.
At a technology conference in Scottsdale, Ariz., this week, Intel Corp.'s chief financial officer, Andy Bryant, said that management at the Santa Clara, Calif., company was "getting more and more comfortable every day" with its fourth-quarter revenue projections of between $6.2 billion and $6.8 billion.
Dell cites pent-up demand
Speaking at the same conference, Michael Dell reaffirmed the fourth-quarter earnings outlook for Dell Computer Corp., Round Rock, Texas, saying that there was significant pent-up demand for both desktop and notebook computers that pointed to an upturn in sales next year.
And chipmaker Fairchild Semiconductor International Inc., South Portland, Maine, told the conference that it expected to meet its earlier guidance that sales this quarter will be flat to slightly down sequentially.
In the hard-hit programmable-logic segment, San Jose-based Altera Corp. this week held to its earlier revenue guidance for the quarter, expecting a 5% to 10% sequential decline.
According to Chris Danely, an analyst at Merrill Lynch & Co. Inc. in San Francisco, Altera's North American business, which represented 44% of the company's third-quarter revenue, "has stabilized with pockets of strength." International business has continued to decrease as expected, however, he noted.
Danely said he feels more confident that first-quarter revenue for both Altera and rival Xilinx Inc. should sequentially increase as the PLD inventory correction in North America nears an end.
In a few cases, companies have even hiked their financial projections. "A recent surge in customer orders" was cited by Taiwan Semiconductor Manufacturing Co. Ltd. as justification for raising its financial forecasts.
"We were on the verge of breaking even, but with the revised forecasts, we're able to generate profits," said Jesse Chou, a spokesman for the Taiwan-based foundry. TSMC's announcement came as a surprise, as the company had just cut its previous targets in September.
Conexant Systems Inc., Newport Beach, Calif., this week said that revenue for the current quarter will rise as much as 7% sequentially, better than previous forecasts because of higher-than-expected orders from wireless telecommunication equipment manufacturers.
But despite the good news, caution still permeates the industry. The improving results may simply stem from seasonal demand, some industry observers pointed out. And signs of an actual upturn remain elusive.
"I don't see the clouds of recession beginning to lift until the end of the first quarter," said Jim Thorburn, chief executive of Zilog Inc., Campbell, Calif. While the consumer electronics sector seems reasonably stable, "Windows XP doesn't seem to be giving the boost that the PC market really expects," Thorburn said. The communications market is mixed, he added.
"I'm still skeptical," said Tony Boase, an analyst at A.G. Edwards & Sons Inc. in St. Louis. "I guess my concern is that in every quarter people have said things are stabilized. It's like the boy who cried wolf too often."
"This issue is how much is seasonal and how much is underlying demand?" said Sue Billat, an analyst at Robertson Stephens Inc., San Francisco. "That's what everyone will look at for clues and hints."
Additional reporting by Robin Lamb and Faith Hung