Small chipmakers see macro economy hurting Q4

Smaller chipmakers warned of tough times ahead for the sector as macroeconomic uncertainties squeeze customer spending, echoing sentiments expressed by larger rivals such as Texas Instruments last month.

On Wednesday, smaller chipmakers EZchip Semiconductor and Silicon Motion Technology Corp posted estimate-beating results for the third quarter, but forecast a sequential decline in their fourth-quarter revenue.

Global chipmakers and foundries have been battling falling demand as the industry was hit by supply chain disruptions due to the March earthquake in Japan and customer inventory adjustments.

Semiconductor makers across the board, including STMicroelectronics, CSR and Broadcom, have seen sales slowing due to weak spending and a slowdown in PC shipments.

Research firm Gartner has slashed its 2011 forecast for PC shipments growth to 9.3 percent, from nearly 14 percent last year.

EZchip, which provides Ethernet network processors for networking equipment, said the market uncertainty and indications of a possible recession are leading contract manufacturers to reduce inventories.

A couple of EZchip's big customers -- Juniper Networks Inc and Cisco Systems Inc -- have talked about how their end markets are slowing down, Chardan Capital Markets analyst Jay Srivatsa told Reuters.

The answer lies with service provider companies like AT&T Inc and Verizon Communications Inc who are their (Juniper and Cisco) end customers who are also seeing some concerns in the macro environment, Srivatsa said.

Silicon Motion Technology Corp also expects fourth-quarter revenue to be flat to 10 percent down sequentially.

On Tuesday, larger peer Atmel Corp forecast dismal fourth-quarter sales and margins, mostly on lower sales of touchscreen controllers to iPad rivals grappling with higher inventories.

The Dow Jones U.S. Semiconductor Index, which has shed 11 percent of its value in the last three months, was down about 5 percent in mid-day trade. (Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Sriraj Kalluvila)