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GaAs firms tumble as recession hits handsets

Power amplifier makers had been hoping for seasonally typical cellphone sales, but this now appears over-optimistic.

A week of bad news concerning global cellphone demand has seen shares in RF Micro Devices and Skyworks Solutions drop more than 20 percent in value.

As the GaAs chipmakers both revised their estimated revenues for the current financial quarter downwards market analyst Panmure Gordon has predicted a knock-on effect on epiwafer supplier IQE.

Number one handset manufacturer Nokia itself set a subdued tone as it cut its shipment volume outlook for the quarter for a second time on December 4.

The Finnish giant s latest guidance did not make a specific volume prediction, but suggested the traditionally strongest sales quarter will be a great disappointment.

“The mobile handset industry stuffed the channel in Q3, expecting a seasonal Q4 in developed markets,” wrote Panmure analyst Nick James, “but the sell-through has been far below expectations.”

James highlights figures from research company Gartner saying that growth of smartphone sales in the third quarter of 2008 was the lowest ever.

In a report also published December 4, Gartner says industry volumes grew by 11.5 percent from Q3 2007 levels to 36.5 million units. Nokia estimated that year-over-year growth had been 39 percent, and industry sales 44.2 million units.

“The industry appears to have overstated the growth of smartphones,” explained James.

This sentiment was backed up by Skyworks CEO David Aldrich, after his company had reduced its revenue estimate for the December quarter from $240 million to $215 million.

“We ve seen a lot of uncertainty in our customers concerning sell-through of handsets,” he told analysts on December 3, a day after revising Skyworks outlook.

“That s resulted in a contraction as our customers want to hold less inventory.”

Skyworks doubled shipments of power amplifiers into smartphones in 2008 from 2007, but it now looks like some of those handsets may be sitting unused in supply channels.

RFMD also cut its revenue outlook by up to 20 percent from its previous minimum expectation of $251 million on December 4.

These developments look set to pass down further through the industry supply chain. In particular, James saw this news as negative for IQE and downgraded his recommendation of the company s stock from “Buy” to “Hold”.

“Our expectations were based on growth in smartphones offsetting a weaker overall market for mobile handsets,” he writes. “It now seems prudent to forecast a flat smartphone market in 2009.”

In an otherwise comparatively stable week on the stock markets, RFMD s share price fell more than 30 percent from $1.09 on December 2 to $0.75 on December 5. Skyworks share price fell over 20 percent from a high of $4.71 on December 2 to a low of $3.57 on December 5. On December 8 both had recovered somewhat, with RFMD opening at $0.81 and Skyworks at $3.95.

IQE s share price fell from a high of 7.59p ($0.11) on December 2 to a low of 5.5p on December 8, over 20 percent down.

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