MANHASSET, N.Y. Two weeks into the earnings season, getting an accurate pulse of the electronics industry remains difficult as companies’ results continue to track unevenly.
Generally, companies in hot or emerging growth areas are prospering, while those in slower-growing markets are not. But with rival companies in even the same market sectors showing varying results, diagnosing the industry’s health is tricky.
At the turn of the current century, the electronics industry rode the telecom and dot.com boom, with everyone from semiconductor to passive components suppliers reporting record sales, rising prices, and part shortages lasting for months. But once the bubble burst about five years ago, most of the electronics industry went into a tailspin. Many companies eventually recovered, but often not without massive layoffs and other painful restructuring efforts.
Over the past few years, the electronics industry has been riding a fast track predicated on the booming consumer electronics and mobile electronics sectors. It is a speeding train that not everyone has been able to catch.
The stage for the current industry malaise was set earlier this month, when microprocessor rivals Intel Corp. and AMD Inc. announced results showing the companies to be heading in opposite directions.
Intel (Santa Clara, Calif.) missed guidance, citing production problems and falling prices for desktop processors. Though Intel has raised capital spending for 2006, the company remains cautious in its sales expectations.
By contrast, AMD (Sunnyvale, Calif.) posted a hefty gain in net earnings. The company expects to continue making inroads into Intel’s dominance of the processor market.
Some communications chip vendors also face difficulties as growth in some wireline technologies hit snags. Vitesse (Camarillo, Calif.) announced Jan. 23 it cut 70 jobs as the company posted another loss. Vitesse builds chips for Ethernet LAN, Ethernet-over-SONET, Advanced Switching, Fibre Channel, Serial Attached SCSI (SAS), and Optical Transport networks in Enterprise and Metro applications.
Applied Micro Circuits Corp. (Sunnyvale, Calif.), which sells network processors and controllers, posted roughly flat earnings in its December quarter, after several quarters of losses. Company officials said Applied was starting to see sales growth from embedded products offsetting sales declines in older storage and communications products.
Companies in the mobile handset sector generally continue to perform well, with Sony Ericsson and Motorola reporting year-end gains despite contrasting reports on mobile phone shipments for 2005. But rival Nokia, despite higher sales, disappointed analysts due to a fall in fourth-quarter profits, which the company attributed to declining average selling prices.
One sector responding rapidly to technological change is memory, where several suppliers are retooling production capacity to accommodate a shift from NOR to NAND flash. One such company is South Korean chipmaker Hynix Semiconductor Inc., which saw profits jump four-fold from a year ago due to increasing NAND flash sales.
But the memory market remains spotty. According to market research firm iSuppli Corp., prices of Dynamic Random Access Memory (DRAM) chips have recently begun to rise. However, the firm does not expect DRAM prices to continue rising.
Contrasting market dynamics are also highly evident in displays, where flat panels continue to rapidly displace CRTs. LG Philips Displays has announced it would close CRT plants in the Netherlands and Germany, cutting 750 jobs. But another LG.Philips venture, LG.Philips LCD Co. Inc., recently overtook Samsung Electronics Co. Ltd. as the leading supplier of large TFT-LCD panels. Both LCD suppliers continue adding fab capacity for the flat-panel TV market.
In an era where being nimble weighs heavily, large Japan-based companies continue to restructure their business, with so far mixed results. NEC Electronics Corp. posted another loss in its December quarter and announced it would fold its NEC Compound Semiconductor Devices Ltd. subsidiary back into the main company.
Rival Sony Corp. managed to turn a profit instead of a loss in its most recent quarter, helped by sales of its Bravia flat-panel LCD TVs. But the wheels of change continue turning, with the Japanese giant announcing it would close its entertainment robot business.