Teather & Greenwood has downgraded its recommendation on microchip designer and manufacturer Telemet...
Teather & Greenwood has downgraded its recommendation on microchip designer and manufacturer Telemetrix despite recent results coming in ahead of expectations.
Citing the weakening demand for Telemetrix's products in North America and the increased risk associated with the escalating fixed costs, analyst Adrian Murray has downgraded his forecasts as well as his recommendation.
In its full-year results to 31 December reported on 27 February, Telemetrix said pre-tax profits rose by 37.6% and EPS by 35%. The driver behind these figures was the analogue semiconductor division, where sales moved ahead by 39% and the operating margin rose to 18.3%.
Within the results was a warning that the immediate prospects for semiconductor business Zetex would be similar to those experienced in the first half of last year as demand for computers and handsets weakens. With overheads set to increase, first-half operating profits will be lower. But Teather expects the second-half recovery to account for this.
The North American slowdown is the major worry for the broker. Teather expects it to last well into the second half of 2001 and limit volumes of Zetex's new product. With costs of £200,000 per month in the first half rising to £500,000 in the second half associated with the development of the new product, Murray estimates that margins for the full year could fall below 13% from the 18.3% reported for the second half of last year.
While he has reined in EPS forecasts for 2001 by 23.8%, Murray expects growth to resume in 2002 and, presuming North America recovers, he sees EPS growth advancing by 20% in each of the next two years.