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Fairchild Semiconductor — How to Play Thursday’s Earnings Report

Shaky demand for chips merits investor caution

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Chipmaker Fairchild Semiconductor (NYSE:FCS) reports earnings for the quarter ending Sept. 30 on Thursday before the market opens. Investors are likely to be disappointed as the semiconductor industry looks to be the first sector showing real operating profit declines.

The highly cyclical industry is in a clear down cycle. The silver lining for Fairchild is that it produces chips used in mobile devices. That segment of the market appears to be still in growth mode. On the flip side, Advanced Micro Devices (NYSE:AMD) last week reduced revenue guidance for the third quarter.

That reduced guidance will further entrench bears of the sector, making it difficult for Fairchild regardless of its operating performance.

During the past four quarters, Fairchild has beaten average Wall Street estimates:

When Fairchild reported results for the quarter ended June 30, it included guidance for the third quarter that was in line with Wall Street expectations. Despite that affirmation, Wall Street analysts slashed expectations for the period ending Sept. 30. Ninety days ago, the expectation was for the company to make 42 cents per share. Today, that estimate is 32 cents per share.

In early September, Fairchild announced sales in the quarter would be weaker than previous guidance. That news confirmed what analysts had expected. For the full year, Wall Street is now looking for the company to make $1.41 per share. In the following year, profits are now expected to slip to $1.32. At current prices, Fairchild trades for 8.5 times current-year estimated earnings.

Article printed from InvestorPlace Media,

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