Salomon Downgrades Silicon Labs to 'In-Line'

The chip maker's largest client forecast a revenue drop amid weaker handset module sales to China

Salomon Smith Barney downgraded Silicon Labs (SLAB ) to in-line from outperform.

Analyst Tim Anderson says Wavecom, which provides 15% of Silicon Labls revenues, forecast an 18% to 23% sequential fourth quarter sales drop, because TCL Mobile of China is backing away from handset module purchases. He notes this news comes on top of a known third quarter build of Silicon Labs components at Wavecom. As a result, he thinks Silicon Labs may have trouble achieving fourth quarter guidance of 10% quarter over quarter sales growth, so he downgraded the shares to in-line.

Anderson says he didn't downgrade further because his checks found largely good news with regard to sales at Silicon Lab's other top customers, including Samsung. He trimmed the fourth quarter earnings per share estimate to 15 cents, and cut the 2003 earnings per share to $65. He also trimmed the price target to $20.

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