SAN FRANCISCO—Chip makers ON Semiconductor Corp. and Atmel Corp. reported second quarter sales and profits that beat Wall Street's expectations, but offered third quarter sales targets that came up short of projections, according to Craig Berger, an analyst with FBR Capital Markets.
ON Semi (Phoenix) reported record second quarter sales of $905.8 million, up 4 percent compared to the first quarter and up 55 percent compared to the second quarter of 2010. The company posted a net income in accordance with generally accepted accounting principles (GAAP) of $41 million, or 9 cents per diluted share, down from GAAP net incomes of $82.6 million in the previous quarter and $78.7 million in the year-ago quarter.
Second quarter GAAP net income included net charges of $73.4 million, or 16 cents per fully diluted share, from special items. These special items included charges associated with expenses from damaged fabs in the wake of the March 11 earthquake in Japan, ON Semi said.
On a non-GAAP basis, excluding charges, ON Semi reported a net income of $114.4 million, or 26 cents per share, down from a non-GAAP net income of $121.2 million, or 27 cents per share, in the previous quarter.
Consensus analysts' expectations called for ON Semi to report second quarter sales of $878.5 million, with non-GAAP earnings per share of 26 cents, according to Yahoo Finance.
Second quarter gross profit and net income were slightly less than anticipated because of the impact of the March 11 earthquake and tsunami in Japan and manufacturing cost increases from commodity prices and foreign currencies, ON Semi said.
In a conference call with analysts following the second quarter report, Keith Jackson, ON Semi's president and CEO, said that, thanks to the effort and teamwork of employees, all of the firm's fabs in Japan—including those that the company acquired when it bought Sanyo Semiconductor Co. Ltd. earlier this year—were capable of full production by the second half of May.
"Semiconductor manufacturing cycle times, however, have a lag between when the factories can begin full production and when those final products can be shipped to customers," Jackson said. "While we anticipate modest sequential growth for Sanyo Semiconductor, it will still be lower than normal seasonality, in part, due to this lost production."
ON Semi said it expects third quarter sales to be between $895 million and $925 million, largely in line with consensus analysts' expectations, which pegged third quarter sales at $913 million, according to Yahoo Finance.
Berger said ON Semi's third quarter guidance was slightly below Wall Street estimates, though generally better than some feared it would be, suggesting that the firm is taking a "breather" from lofty growth, but that business is not falling off a cliff.
But Berger said ON Semi's second quarter gross marging—35.2 percent—was disappointing, with the impact of the March 11 earthquake larger than expected. Forecasted third quarter gross margin of 34 to 35 percent was also a disappointment, Berger said. He said FBR analysts believe that increasing production from the former Sanyo fabs and a coming end of internal inventory depletions signal that some bad news is factored into ON Semi's gross margin guidance, suggesting that it can improve in 2012.
Jackson said the company anticipates that earnings from Sanyo will improve from second quarter levels in the second half of the year.
Berger maintained FBR's "outperform" rating on ON Semi's stock, but cut his estimates for the firm's 2011 pro forma earnings per share to $1.08 from $1.20 and reduced FBR's price target for ON Semi's stock to $14 from $17.
ON Semi's stock traded at $7.80 in afternoon trading Thursday, down 9 percent from Wednesday's close.
Next: Atmel's 9th straight quarter of growth
On Semiconductor, Craig Berger, Atmel, Quarter, Million Analyst: Atmel, ON Semi Q3 targets fall short
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