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A warning from one small semiconductor company spooks the whole industry [The Oregonian, Portland, Ore.]
[October 10, 2014]

A warning from one small semiconductor company spooks the whole industry [The Oregonian, Portland, Ore.]


(Oregonian (Portland, OR) Via Acquire Media NewsEdge) Oct. 10--Major semiconductor stocks are off sharply Friday morning, driven down by a warning from one chip company with a factory in Gresham.

Microchip Technology, which employs about 400 at its Gresham fab, warned that third-quarter sales totaled about $546 million, well below the $560 million to $576 million the company had forecast. The company said that September sales were unusually weak, driven by poor sales in China.



Though Microchip is relatively small (with a market value around $8 billion), its results sent a shudder through the entire industry.

The chip industry is notoriously cyclical, moving like a sine wave. Years of good news gradually give way to a sustained down stretch. And Microchip's chief executive, Steve Sanghi, suggested that the poor September results could be an ill omen for his company and many others.


"Microchip often sees the turn of the industry ahead of others in the semiconductor industry," Sanghi said in a written statement. His company reports its distributors' sales, meaning that Microchip's results are more reflective of what's going on at any given moment because there's no lag between the company's sales and what distributors are finding.

"We believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future," Sanghi wrote. "While we are reducing our production levels in our wafer fabs and assembly and test facilities, we are continuing to ramp production on our new technologies where we have been capacity constrained." There was no immediate word on what that means for Microchip's Gresham fab (a fab, of course, is industry lingo for a chip factory), but the company's warning was immediately felt across the industry.

On an otherwise up day for the markets, chip stocks are tanking. Here's a rundown of companies with major operations in the Silicon Forest: --Intel is down 4.4 percent --Linear Technology is down 6.1 percent --Lattice Semi is off 6.3 percent --Microchip is off 13 percent --Maxim is down 6.5 percent --ON Semiconductor is down 9.2 percent --RFMD (which is merging with Hillsboro-based TriQuint Semiconductor) is down 8.4 percent --TriQuint is down 8.4 percent --TSMC (which owns the WaferTech fab in Camas) is down 3.7 percent.

Analyst Craig Berger of Hedgeye Semiconductors was most emphatic in his reaction, agreeing that Microchip's results bode ill for the whole industry.

"Semiconductor Downcycles affect all chip firms," Berger wrote in a note to clients. "Nobody will be spared. Chip stocks that have not yet sold off will see selling pressure." The current up cycle has lasted 272 weeks by Berger's count, the longest run since an equally long stretch from 1990 to 1995. He said that this downturn could be relatively short based on historical patterns, perhaps less than six months.

Risks are especially acute for volatile chip stocks, he wrote, including TriQuint Semiconductor and ON Semiconductor, both of which have large operations in Oregon. But he said the risks are also substantial for the industry's biggest players, up to and including Intel.

Computer chip production is, by far, the largest component of Oregon's tech industry. So a downturn will be broadly felt.

Intel, which employs 17,500 in Oregon, reports third-quarter results Tuesday.

-- Mike Rogoway; twitter: @rogoway; 503-294-7699 ___ (c)2014 The Oregonian (Portland, Ore.) Visit The Oregonian (Portland, Ore.) at www.oregonian.com Distributed by MCT Information Services

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