With the NASDAQ composite having fallen all the way from 5000 to less than 2000, it is not surprising to see that virtually all of the Portfolio companies are now trading within striking distance of their 52 week (see ). There are times when share prices go up and down for no reason otherthan that is the direction that market momentum is heading. Sadly, this is not the case here. The outlook for the next several quarters is deteriorating rapidly. Almost allof the GaAs IC companies have already issued warnings. Alpha Industries announced that its revenues were slowing by around 20% and that its profit targets for the March quarter would be slashed from around 20 cents per share to 5 cents. The company cited slowing demand from both handset and infrastructure customers. RF Micro Devices lowered their outlook for the quarter to a loss of 3 to 4 cents per share, down from the January projection of 2 cents per share profit. Revenue is expected to be $55 million, down from $85 million in the year-ago period. RFMD cited slowing demand from handset, infrastructure, and broadband customers, and said that is seeing some orders pushed out as well as some cancellations. Stanford Microdevices anticipates first-quarter net revenues of around $8.0 million, 25% lower than previous projections, and earnings expectations have been cut from 5 cents per share to break-even. The company blamed "the actions and plans of the worldwide telecommunications industry to reduce component inventory levels and planned equipment production volumes, and to delay the build-out of new wireless network infrastructure." Wireless in decline These gloomy tidings are driven primarily by slowdowns in the wireless industry. As noted previously in this issue (see page 7), leading analysts are now predicting almost no growth in handset production in 2001, whereas just a few months ago the forecast was in the double digits, with a significant recovery in the second half of the year. It now appears that this scenario was too optimistic. Since wireless accounts for 6070% of all GaAs IC sales, the impact on the GaAs industry is going to be significant. Kopin has been particularly hard hit. The company has two divisions, one that sells HBT epiwafers and one that is developing display products. The poor visibility in both areas has lead analysts to speculate that revenues could decline precipitously in the March quarter, in comparison to the December quarter. According to Dale Pfau of CIBC World Markets: "Continued weakness at Conexant, coupled with weakness from Mitsubishi on GSM will cause a significant sequential decline, perhaps 50%, in III-V product revenues in the first quarter." CIBC has cut their estimate for the year from earnings of 29 cents a share on $128 million in revenue to a loss of 2 cents per share on revenue of $80.5 million. At the time of writing, Kopin was trading at a new 52 week low. Unfortunately, wireless is not the only area that is suffering. Capital spending has also dried up in the fiber-optic and CATV communications sectors, leading to more bad news for GaAs companies. TriQuint Semiconductor now says that it expects to show little or no growth in revenue in the first three quarters of this year. The company reported slowness in most areas, but fiber optics, which accounted for 29% of TriQuint s revenue in the December quarter, was noted as particularly weak. Slowing demand for CATV components is likely to lead to a 25% drop in revenue for Anadigics in the June quarter. CATV accounts for around 60% of Anadigics sales. Most shocking of all is the fact that even Vitesse, the steadiest performer of all the GaAs fabs, has been forced toissue a warning for the March quarter. The revenue forecast was lowered from $180190 million to $150160 million, and projected net income was said to be 2122 cents per share, 5 cents lower than previously expected. Communications account for over 90% of Vitesse s sales. One bright spot in the announcement was the fact that OC-192 modules continue to show robust growth. LEDs on or off? There have been several recent reports of "softness" in the LED market. While some macro-economic trends, such asthe energy shortage in California, would seem to favor LED manufacturers, a general economic slowdown will reduce demand for consumer-oriented products that use LEDs for functions such as indicator lights. Some manufacturers have significant exposure to the wireless handset market which, as discussed previously, is suffering. It wasn t surprising then, when Cree announced on March 7 that despite the fact that it is on track for the March quarter, it was lowering its guidance for the June quarter. In January the company had indicated that it was 90% booked for the March quarter and 75% booked for the June quarter. Since then order trends have softened dramatically. The company expects its revenue and earnings for the June quarter will be 1015% below the March quarter. This would result in revenue of approximately $4548 million, with earnings per share of $0.140.16. Cree s CEO Neal Hunter explained, "Obviously, we are dealing with a slowing economy that puts pressure on our customers which, in turn, inhibits our revenue growth. In the face of these obstacles, Cree has a solid arsenal of resources to create new products, lower existing costs and penetrate applications. We also have much of the equipment and facilities in place to serve a growing market over the next 12 to 18 months as economic conditions improve. This should limit capital spending requirements and position us to build cash, assuming our revenue and earnings targets are attained. With the strength in our balance sheet, we can continue to focus on those elements that provide the greatest leverage overthe long term." In light of the Cree announcement, which was made on March 7, it was interesting to see Uniroyal Technology Corporation (UTC) issue a press release the very next day saying that the high-brightness LED (HB-LED) market is not slowing (see ). UTC and Emcore are partners in an LED-manufacturing joint venture called Uniroyal Optoelectronics (UOE). It should be noted, however, that UOE s total LED-related sales are currently less than $1 million per quarter, giving them much less exposure to the market downturn than Cree, which has quarterly LED revenues in excess of $40 million. "Although recent announcements indicate a slowdown in some segments of the market, this does not appear to be thecase in markets requiring the increasingly higher brightness levels that Uniroyal Optoelectronics has developed," said Robert L Soran, president and CEO of UTC. "The very high-brightness products have traditionally been produced on sapphire substrates and the leading suppliers have been Toyoda Gosei and Nichia. Comparative lamp testing indicates that UOE s gallium nitride blue and AlInGap 626 nm red products areat the high end of the brightness levels." He went on to say that while marketssuch as LCD backlighting for mobile phones may experience a slowdown, demand for very high brightness products for applications such as outdoor video displays, signage and traffic signals remains strong. The achievement of higher brightness levels has decreasedthe number of LEDs required in high-brightness applications. This, in turn, has resulted in more cost efficient conversions to LED lighting from traditional incandescent methods, creating a wide variety of new applications for high-brightness LEDs. Investors will no doubt review UTC s financial results with great interest to see what kind of impact these trends have on the company s bottom line.