Tuesday, December 21, 2004

Solectron: End market demand to blame?

SLR reported earnings after market today and had nothing nice to say with lower than expected revenues due primarily to weak end markets. Also lowered guidance for next year with emphasis on 2nd half of 2005. We have heard this back-end loaded story too many times to believe it now so companies should just find better tag-lines to use for their spins.

Unlike JBL yesterday, SLR was more straightforward in laying out the landscape. "Demands softened throughout the quarter and volume that we expected late in the quarter did not materialize". Weakness particularly in set-top boxes (TIVO, PHG), 3G handsets (NEC), computing and PC (HPQ, IBM, SUNW) saw strength in peripherals and low-end servers with high-end being weak. Semiconductor Test remains in downdraft (TER, A) which suggests semiconductor back-end demand is not picking up which would suggest overall lower units and coupled with lower prices its just not a pretty sight for Semiconductor companies. Networking (CSCO and NT) was weaker than expected but SLR expects networking to pick up in February quarter as customers start ordering again as their inventories are worked down.

All in all nothing to suggest end markets are coming back to life, we might see some year-end buying for PC/Servers and Networking but inventory draw-down is the game being played right now. If end markets do not have a sustainable pick up we might have another round of lower than expected quarters by Semiconductor suppliers. I think there is pockets of strength in networking and PC/Computing but nothing to suggest we will see same level of budget-flush we saw last year this time. Time to take money off the table in tech- especially from selective Semi names.


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