Chipmakers Faces more Issues

From Mish: When the chips are down, chipmakers resort to other means

Economic pain that has been hitting the financial economy and the brick and mortar retailers is hitting Silicon Valley as well. Many chip companies are short of cash and layoffs are increasing. Memory chipmakers are among the hardest hit.

Technology companies with headquarters in Silicon Valley -- a corridor of office parks stretching between San Francisco and San Jose -- have announced at least 38,000 job cuts since September. Hewlett-Packard Co., Yahoo! Inc., Adobe Systems Inc., Sun Microsystems Inc. and Palm Inc. are among the firms paring their workforces.

The fourth quarter earnings reports are going to be miserable. If you thought the fourth quarter was bad, wait until you see the first quarter. It's almost always true in the tech sector that Q1 is the worst quarter of the year, and Q4 is the best. This year, it may be that even after an unthinkably bad fourth quarter, the first quarter will be nastier still.

PC and mobile-phone sales could be even worse than most people imagine. Peter Misek, an analyst with Canaccord Adams, last week predicted that '09 PC sales are likely to be down 10%-15%, much worse than the consensus view of down 5%-6%, and that mobile-phone sales are likely to be down as much as 20%, rather than the 4%-6% decline the Street expects.

Some of these companies may be trading at book value, but those book values are falling fast. This recession will be longer and deeper than most think, and "values" are likely to become "bigger values". Caution is in order.