Wall Street Beat: After yearly high, doubts remain for tech

Chips and hardware are scrutinized as vendors turn in mixed results

In a tumultuous week on the market, the attention of IT investors was captured by a mixed bag of acquisition activity and earnings news from the hardware and chip arena -- a sector that is supposed to help lead tech out of the recession.

While Dell announced lower-than-expected financial results, chip maker Infineon swung to a profit, Applied Materials said it plans to acquire Semitool, and Semtech announced it will buy Sierra Monolithics.

Though much of the news was upbeat in a week that saw U.S. markets hit highs for the year, there is still much uncertainty about the future. For example, Bank of America Merrill Lynch downgraded the chip sector Thursday, citing possible inventory corrections if recent optimistic predictions for growth turn out to be too optimistic.

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In a tumultuous week on the market, the attention of IT investors was captured by a mixed bag of acquisition activity and earnings news from the hardware and chip arena -- a sector that is supposed to help lead tech out of the recession.

While Dell announced lower-than-expected financial results, chip maker Infineon swung to a profit, Applied Materials said it plans to acquire Semitool, and Semtech announced it will buy Sierra Monolithics.

Though much of the news was upbeat in a week that saw U.S. markets hit highs for the year, there is still much uncertainty about the future. For example, Bank of America Merrill Lynch downgraded the chip sector Thursday, citing possible inventory corrections if recent optimistic predictions for growth turn out to be too optimistic.

The Dell results rang a warning note. Though the PC maker stressed that quarterly revenue of US$12.9 billion was a 1 percent sequential improvement from the prior quarter, it was nevertheless down 15 percent from a year ago. Net income of $337 million was down 54 percent. Both sales and profit were lower than analyst expectations.

Infineon, which makes chips for embedded systems as well as cell phones, on Thursday reported an 18 percent decline in sales to €855 million ($1.2 billion) for the quarter ending Sept. 30. However, cost cuts undertaken last year are taking effect. Net profit was €14 million compared with a net loss of €884 million a year earlier, when the company took on restructuring charges losses.

The good news is that sales are expected to rise 10 percent in the fiscal year ending Sept. 30, 2010.

"At the moment we are seeing a small upswing. It is difficult to tell how strong it will be and how long it will last," said Infineon CEO Peter Bauer in a conference call. "We are benefiting from warehouses being replenished in the value-added chain, but the fundamental demand is also picking up."

Bauer remained somewhat cautious, however. "It has to be said, though, that our customers’ ordering practices are not following normal patterns at present," he noted.

Infineon, based in Germany, is not traded on major U.S. exchanges, but its financial report was looked at closely in a week of news about the chip market. Applied Materials, which makes equipment for chip fabs, said Tuesday that it will acquire Semitool for $364 million in cash. Semitool offers batch wet-chemical processing equipment, and Applied Materials will use the company's technology to help its copper conversion efforts. Applied Materials positioned the announcement as a sign of confidence.

"The semiconductor industry recovery is being fueled by global demand for mobile devices such as smart phones, notebook PCs and portable media players for music, gaming and books," said CEO Mike Splinter in a statement. "With this acquisition, Applied will help the world’s leading chip makers create ever-smaller and more powerful devices."

On Wednesday, Semtech, which makes analog and mixed-signal semiconductors for high-end consumer and communications equipment, said it will buy Sierra Monolithics for $180 million in cash. Sierra Monolithics makes high-performance analog integrated circuits for communications systems.

The IDG News Service is a Network World affiliate.