Seeking Alpha: The Market Is Skeptical Toward ON Semiconductor ... As It Should Be

"Under-promise and over-deliver" is popular corporate speak, but apparently not a central part of the operating philosophy at ON Semiconductor (NASDAQ:ON). Although I do think that ON Semiconductor has some good things going for it and has done a respectable job of improving its cost structure, there has been a trend in place here for some time of promising more than is actually delivered.

That's an admittedly harsh opening statement on a company that, on balance, I still like. I wasn't all that fond of the shares back in March (and the price has fallen about 20% since), but the stock's performance relative to Texas Instruments (NASDAQ:TXN), Maxim (NASDAQ:MXIM), and Fairchild (NASDAQ:FCS) hasn't been too bad over the last year (or three years), though NXP (NASDAQ:NXPI) has handily outperformed the group. With this pullback, I think the shares are once again a more interesting prospect, particularly given growth opportunities in wireless, computing, and autos, but for as much as the performance of these shares may be tied to future revenue growth and margin improvements, a stronger sense of credibility from management may be the biggest potential catalyst of all.

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The Market Is Skeptical Toward ON Semiconductor ... As It Should Be

Seeking Alpha: Microsemi Not Quite To Plan, But Still Improving

Owning Microsemi (MSCC) is an interesting experience. For a company that is pretty small and obscure by most standards, there's a surprising number of people who want to bash the company and claim that its success is only due to the fact that it is, in many cases, the only approved supplier of a particular component.

Let the haters hate - I'm firmly in the black with these shares and the trailing performance compares quite nicely with the semiconductor sector as a whole, not to mention individual rivals like Silicon Labs (SLAB), Fairchild (FCS), and Semtech (SMTC). What's more, the company is built upon a continuous flow of new products, coupled with moves to unlock more operating leverage from the operations. Although these shares are close to my fair value, and I have considered selling them in favor of owning a more undervalued chip stock, a recovery in multiple end-markets could drive higher performance from here.

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Microsemi Not Quite To Plan, But Still Improving

Investopedia: Texas Instruments Not Quite In The Clear Yet

We’re about one-third of the way into the year, and 2013 isn't shaping up as a banner year for chip stocks. Although there is a widespread expectation that the industrial and automotive markets will improve, analysts are still unsure of the path for communications infrastructure, handsets, consumer electronics, and PCs. With Texas Instruments (Nasdaq:TXN) holding on to considerable margin leverage tied to utilization, industry-wide order and shipment volumes could well point to just how strong of a year this large chip company will have.

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Seeking Alpha: Microsemi Gets A Pass On A Tough Quarter And Lousy Guidance

This has been a strange quarter for many tech stocks, as investors seem relatively willing to give a pass to unimpressive guidance for the first calendar quarter of 2013. That's fortunate for Microsemi (MSCC) shareholders, as this company not only posted a small miss and weak bookings for its quarter, but offered weak guidance for the next. Microsemi can be a maddening and frustrating stock to own, but if management stays on target with cost reductions and new product introductions, the long-term rewards could be well worth some white knuckles in the meantime.

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Microsemi Gets A Pass On A Tough Quarter And Lousy Guidance

Investopedia: Atmel's Ironic Warning

Here's a riddle for investors: when is bad news actually good news? The answer: When the bad news is less bad than already feared. That very much seems to be the case for Atmel (Nasdaq:ATML) this Friday, as this small semiconductor's stock has actually held up quite well, despite a sizable revision to sales guidance for the fourth quarter.

The Bad News 

Atmel announced that fourth quarter revenue was going to be approximately $384 million for the fourth quarter; not only down 20% from the third quarter, but quite a bit lower than the average analyst estimate ($412 million) and the lowest estimate ($403 million).

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Investopedia: Has Analog Devices Made It Through The Worst?

In some respects, analog chips are the workhorses of the semiconductor world. When the chip market goes into its regular troughs, the analog makers like Analog Devices (NYSE:ADI) batten down the hatches, and prepare for a few quarters of sequential earnings decline before the inevitable stabilization and recovery. Although the global economic situation is precarious, Analog may largely be through the process of seeing order levels reset ahead of a recovery.

A Tough Close to a Challenging Year
There wasn't all that much good news in this fiscal fourth quarter for Analog Devices. Revenue fell 7% from last year and 6% from the preceding quarter. Sales were weakest in the industrial and communications categories, where both saw double-digit year-on-year declines. Sales to automobile manufacturers were quite strong, though, and sales to the consumer category were mixed - better from the fiscal third quarter, but down from last year.


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Investopedia: A Good Opportunity In Broadcom

For all the lamenting I do about stocks that are just not cheap enough, Broadcom (Nasdaq:BRCM) is a welcome antidote. While this leading wireless chip company has lost none of its edge or appeal, a short-term burp in guidance has some investors selling the shares. Unless people believe that the move to smartphones and greater connectivity is suddenly over, this is a serious candidate to buy for a rebound. 

Q1 Results - So-So ... But So What? 

Broadcom did not deliver great results for the first quarter, but there was no particular expectation that it would. Revenue did fall 7% from the fourth quarter (although up 24% from the year-ago period), as broadband (down 15% sequentially) really fell off and mobile/wireless dropped almost 6%. Though there are many moving parts to consider, it looks like weakness in the cellular baseband business, largely a problem with Nokia (NYSE:NOK), was part of the sales decline. (For more, see The Rest Of The Earnings Story.)

There is a lot of operating leverage in Broadcom's business model, but that cuts both ways. GAAP gross margin slid about 20 basis points from the fourth quarter and close to two full points from the year-ago level. Operating income fell about 16% sequentially - and rose 16% from the year-ago level - while the operating margin contracted.

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Investopedia: Linear's Ups And Downs

For long-term shareholders, Linear Technology (Nasdaq:LLTC) is anything but linear. Although this company has a phenomenal record of producing top-notch margins, returns on capital and free cash flow, the reality is that the analog semiconductor business is cyclical and even a top operator cannot do anything about that. With disappointing (albeit not completely surprising) fiscal third quarter guidance, semiconductor investors are left wondering what 2011 will hold for the sector. 

The Quarter That Was
While it will likely be overshadowed by the guidance, Linear's reported second quarter results were actually quite good. Revenue fell 1% sequentially (and rose 50% annually) and beat the average estimate on the Street. Strong Apple (Nasdaq:AAPL) iPad sales no doubt helped, but the ongoing recovery in the industrial and automotive markets were more significant.

The company also did a solid job (as it almost always does) on profitability. Gross margin was flat sequentially at 78.5%, but up about 250 basis points from the year-ago level. Operating income did drop 2% sequentially (and jump 74% annually), but this was better than expected. At the bottom line, the company beat estimates, even after excluding a boost from lower taxes. (For more, see The Bottom Line On Margins.)

The Rocky Road Ahead
Although Linear's second quarter was solid, its is likely that guidance for the third quarter will dominate the story. While the Street had been expecting a 1-2% sequential decline, the company announced that revenue would fall 6-10% instead. There appear to be two primary causes for this negative outlook.


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