You may have heard the adage that "so goes the financial sector, so goes the market." Investors tweaked that catch phrase by replacing financial with technology during the dot com craze.
If technology stocks were in rally mode, most other sectors would follow suit. Investors took their lead from this ever important sector.
At the heart of the technology sector is the semi-conductor space. Chips have penetrated every aspect of the technology industry, and the health of the chip market is a key signal to the overall health of technology.
Technology lost its luster after the tech crash in 2000, but following the space provides a road map to the future health of the entire economy.
On Monday, one of the bell weather firms released it quarterly earnings report. Texas Instruments (TXN) is $22 billion market cap manufacturer of semiconductor chips and components for a wide range of consumer, commercial and governmental products.
The news in the release was not pretty. The company stated that it had earned $563 million or $0.43 in the third quarter. Profits were down 26% from the same period last year. Revenues came in at $3.39 billion for the period.
On the surface these numbers were not all that bad. The profit for the quarter was a penny light and revenues were in line with expectations. The problem was for the future.
In providing guidance for the fourth quarter…
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…TXN stated that it sees a substantial slowdown in its business. Based on weak order trends the company now sees profit in the fourth quarter at $0.30 to $0.36 per share. Analysts had been predicting a profit of $0.44.
Revenues in the final quarter are now expected to be at $2.83 billion to $3.07 billion. The current expectation is for sales to hit $3.3 billion.
These are disappointing numbers for sure and my guess is that the results will be even worse than expected. It is always a tricky game to predict business trends during a down cycle and it will be no different this time around.
In fact, the downturn being driven by a consumer recession is likely to crimp sales in non-essential items. That means electronic good purchases will have to wait for better times in the economy. Given that holiday sales are expected to be weak, TXN may have to guide even lower than these disappointing numbers.
And the numbers were disappointing. Shares of TXN headed south immediately upon the release. In open trading today, shares close down more than 6%. TXN has already lost more $15 over the last year making this news all the more troubling.
Is TXN a sinking ship or is the current discount in shares inline with a new reality of slower sales and lower profits and thus a bargain?
Current estimates for 2009 are at $1.80 per share. If the company comes in $.80 light and earns only $1.00 per share TXN would have a value of 16 times earnings. It would be huge news for earnings to come in at that level thus TXN may be a bargain at the moment.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com and check out:
