Today’s earlier than expected announcement ahead of the bell from Microsoft (MSFT) that they will undergo a significant layoff of personnel and that they would not be providing guidance for 2009 earnings has dealt another blow to an already reeling technology sector.
Bleak Forecast For Technology Sector
KLA-Tencor (KLAC) earlier this month issued its revised forecast of sales for the fourth quarter. Now estimating sales in the $390 million to $410 million range versus the $410 million to $430 million previously anticipated.
Citing the triple whammy of the economic downturn, the credit crunch and weakness in consumer demand, KLAC stated that the company’s customers are facing the need to scale back production operations and reduce capital expenditures.
KLAC does not expect demand from customers to return to previous levels or to exhibit any kind of growth in the near term.
The revised outlook for KLAC revenues and earnings should not come as any surprise. Unless a person is waking from a Rip Van Winkle type slumber, KLAC’s revisions were predictable (as is the case for all technology-related companies) in the current economic environment.
KLAC is the world’s leading supplier of process control and yield management solutions serving the semiconductor and the related micro-electronic industries.
The company is also among the top ten companies worldwide engaged in the manufacturing of semiconductors.
There should be no doubt that the vast majority of companies in this sector will be reporting steep declines in revenues and profits.
Is KLAC a Bargain?
The question remains, however, whether the sell-off in KLAC’s stock is warranted. There is no doubt of the negative impact economic conditions will have on the company. Price markdowns in evidence at any retailer engaged in the sale of electronic products give stark testimony to the huge overhang of unsold inventory at these outlets. That overhang translates inevitably to reduced demand for components to facilitate the manufacturing of new products to restock store shelves and reduces demand for KLAC’s’ solutions.
Company fundamentals, however, are solid. With long term debt of less than 30% of equity and a current ratio of nearly 3.4, the company is not at risk of defaulting on its debt obligations. KLAC is trading at a relatively low 1.6 times sales and is generating earnings on a per share basis of under 1.5.
Currently trading at $19.55 the stock is only marginally improved over the 52 week low of $14.81 and well off the high of $47.07.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
