Tuesday December 14, 6:35 pm Eastern Time Chip makers, contract firms tumble on Solectron results SAN FRANCISCO, Dec 14 (Reuters) - Shares of semiconductor firms and contract computer makers tumbled on Tuesday, after Solectron Corp.'s (NYSE:SLR - news) first quarter results sparked investor concerns about a possible computer industry inventory buildup.

Solectron, a contract computer maker, reported on Mondayfirst quarter earnings of 36 cents a share, which were in line with Wall Street's expectations, but its revenues of $2.5 billlion were shy of some analysts' estimates of $2.7 billion.

Wall Street analysts said a shortage of key components hurt Solectron and was part of a broader problem for printed circuit board makers. But they also cited concerns over a build-up in Solectron's inventory to buffer the company during the year-2000 computer repair transition now taking place.

Milpitas, Calif.-based Solectron had a $400 million increase in inventory in the first quarter built up as a Y2K buffer.

``We think there is inventory accumulation going on,'' said Hans Mosesmann, a Prudential Securities chip analyst, adding, ``I think we are seeing the first evidence of inventory accumulation with the number one contract manufacturer.''

Shares of Solectron fell 11 percent on Tuesday, dropping 10-1/8 to close at 82-15/16, fueling a sell-off among both computer contract manufacturers and semiconductor companies. Analysts downgraded several Solectron rivals, and fears of a possible inventory parts build-up roiled semiconductor stocks.

Among contract manufacturers, Celestica Inc. (NYSE:CLS - news) fell 9-9/16 to 81, Jabil Circuit Inc. (NYSE:JBL - news) dropped 9-5/16 to 66-7/16, and SCI Systems Inc. (NYSE:SCI - news) was off 4-1/8 to 81-3/8, all on the NYSE. Flextronics Inc. (NasdaqNM:FLEX - news) lost 7-3/8 to 85 on the Nasdaq stock market.

A wide range of semiconductor shares tumbled in the rout. Texas Instruments Inc (NYSE:TXN - news) fell 9-6/16 to 96-9/16, National Semiconductor Inc. (NYSE:NSM - news) eased 5-11/16 to 41-1/4, LSI Logic Corp. (NYSE:LSI - news) erased 4-9-16 to 55-13/16, Micron Technology Inc. (NYSE:MU - news) lost 2-3/16 to 62-7/16, all on the NYSE. On the NASDAQ, the biggest chip losers were Xilinx Inc. (NasdaqNM:XLNX - news), down 8-1/16 to 78-15/16 and Altera Corp. (NasdaqNM:ALTR - news), off 4-1/4 to 45-7/16.

Mosesmann said that some computer makers and contract manufacturers had already doubled ordered to get some extra inventory for potential Y2K problems and after the earthquake in Taiwan in September some companies began triple ordering.

``So it turns out that the Taiwanese turned this around much quicker than anyone would have imagined,'' he said. ``People who double and triple ordered are getting product faster than they wanted it and they can't push it back to the fabs like TSMC, otherwise they will go back down to the bottom of the list.''

Jack Geraghty, an analyst at Gerard Klauer Mattison & Co., said that he does not believe there is widespread hoarding of inventories.

``I don't think there is massive hoarding of chips because a couple of companies I've talked to, their lead times haven't changed,'' he said. Geraghty also pointed out that the semiconductor group as a whole, along with chip equipment stocks, has done very well in the past couple of months. ``The slightest wiggle makes people want to take profits,'' he said.

The Philadelphia Semiconductor Index closed down almost seven percent, off 43.05 to 587.99 as every issue in the 16-component index turned negative, led led by the steep drops in Texas Instruments Inc. and Xilinx.

http://biz.yahoo.com/rf/991214/bco.html

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-- LOON (blooney10@aol.com), December 14, 1999

Answers

Huh? Somebody help -- are 1st quarter 1999 numbers just now being reported (...reported on Monday first quarter earnings...)? This makes no sense.

-- TA (sea_spur@yahoo.com), December 15, 1999.

TA,

Company fiscal quarters may be very different than calendar qurters. In Solectron's case, their fiscal year starts in September, so this would be their first quarter FY 2000 report.

Jerry

-- Jerry B (skeptic76@erols.com), December 15, 1999.