Chip Forecasts Fail to Excite on Wall Street

Despite generally positive forecasts from chipmakers and some upbeat research notes from analysts, technology company stock prices have not fared well throughout most of this week. It’s a strong reminder that the technology sector is not immune from broad concerns, because the main culprit for share-price slippage seems to be energy worries.

The week of chip-sector forecasts was capped by Intel Corp.’s announcement after the market closed Thursday. The company boosted the low end of its guidance, although the midpoint of its forecast remains the same. It now forecasts fourth-quarter revenue to be between $10.4 billion and $10.6 billion, compared to the prior guidance of $10.2 billion to $10.8 billion.

The Intel update came after several other chipmakers also raised at least the low end of their forecasts, based on stronger-than-expected sales and expectations of continued strong demand. Intel, however, insists it can stay ahead of the competition. For example, speaking at a special event last week, company Chief Financial Officer Andy Bryant said the scale of its operations and manufacturing acumen will help keep costs down and help it spend money on research and development. On the conference call Thursday after the company released its tightened forecast, he cited high expectations for the mobile market

Before Intel’s update, its share price (INTC) closed at $25.70, down by $0.45. This reflected a pattern for the week.

For example, Texas Instruments Inc. also raised the low end of its fourth-quarter guidance Wednesday. The low end of the company’s fourth-quarter revenue projection now is $3.56 billion, compared with the prior low-end estimate of $3.43 billion. Earnings per share guidance is now $0.41 to $0.43 (excluding one-time items) compared with its earlier forecast of $0.39 to $0.43.

Company executives said sales of wireless chips, digital light processors used in TVs, and high-performance analog chips are surpassing earlier forecasts. Despite this, Texas Instruments (TXN) shares slipped by $0.93 to close Thursday at $32.63

Thursday morning, mobile phone chipmaker Qualcomm Inc. raised its earnings forecast. It forecast a profit for the quarter ending Dec. 25 of $0.32 to $0.33 per share, a boost from prior guidance of $0.30 to $0.32 per share. The optimistic outlook is based on shipments of about 47 million Mobile Station Modem (MSM) chips during the quarter, compared with 39 million one year earlier. Despite this, shares (QCOM) closed at $44.21 for the day, down by $0.79.

In other news, Cisco Systems Inc. appeared to buck the downward trend after JPMorgan upgraded its rating of company shares from “neutral” to “overweight.” In a research note, the investment brokerage said it based its change of rating on what appears to be a Cisco policy of getting into new markets such as IPTV and consumer sectors “as opposed to eking out incremental growth from its existing enterprise routing and switching businesses.” Cisco shares (CSCO) rose by $0.22 Wednesday to close at $17.78. The rise was short-lived, however, as shares settled back down to close at $17.64 Thursday.

Rising oil prices this week were widely blamed for putting a damper on markets including the tech-heavy Nasdaq, which hit a four and a half year high last week. The fear is that higher energy prices leave businesses and consumers with less money to spend on new products and replacement technology. It might take a combination of more positive forecasts of IT growth and an easing of energy worries to assuage the concerns of technology investors and get the year-end rally in tech stocks back on track.

By Marc Ferranti – IDG News Service (New York Bureau), Additional reporting by Tom Krazit in San Francisco.