3/17/2010
By Carlos Guillen, Semiconductor Analyst

Positive signs coming from the semiconductor industry continue trickling down. The most recent positive news came from LSI Corporation (LSI), a provider of storage and networking components, which increased its revenue and earnings guidance for the first quarter of 2010. According to LSI management, revenue is now expected to be in the range of $620 million to $640 million, up from the prior guidance of $590 million to $620 million and higher than the Street's estimate of $608 million. As a result of the stronger top-line expectation, earnings per share guidance was also raised and is now expected to be in the range of $0.07 to $0.11, up from prior guidance of $0.04 to $0.10 and higher than the Street's estimate of $0.07. Management attributed the improved guidance to greater-than-anticipated strength in the recovery of enterprise IT spending during the first quarter.

Also, two days prior to the LSI news, Microchip Technology Incorporated (MCHP), a leading supplier of microcontrollers and analog chips, increased its revenue and earnings per share guidance for its March quarter. As it has been evident through virtually all analog players in the semiconductor industry, the business is strong. Microchip said that it now expects revenue to increase sequentially by 8 percent, which puts revenue at approximately $270 million; earnings per share expectations were also increased to $0.42. This new guidance was much better than the prior guidance calling for revenue growth of 3 percent to 7 percent and earnings of $0.39 to $0.41. Moreover, the guidance was above the Street's estimate, which called for revenue of $264 million and earnings of $0.36.

And of course, one cannot fail to mention the blowout quarter results that National Semiconductor (NSM) reported on March 11. National reported February quarter revenue of $362 million, growing by 5.02 percent sequentially and by 23.8 percent year-over-year. The result landed above the Street's $348 million consensus estimate and above management's guidance of roughly $345 million. Even more encouraging was the management said it expected revenue to be in the range of $375 million to $390 million, which was nicely higher than the Street's estimate calling for $360 million.

Apparently the business is looking strong from all perspectives. In general the analog business continues its strong momentum. Demand for personal computers, smart phones, and flat panel displays is still strong despite what would normally be a seasonally weak first quarter. Overall inventories are still low, and pricing is stable, representing a favorable environment for sustained revenue growth, at least in the short term. All in all, I believe 2010 will be a good year for the semiconductor industry as demand for PCs and handhelds will continue to boost revenues. Corporate spending should also provide an additional lift to revenues in the second half of this year. Moreover, improving technologies are allowing the development of new products that are creating new markets. Some of these new market makers include devices such as net-books and tablets.

Carlos Guillen
Wall Street Strategies