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Xilinx, Schnitzer Steel Bring Holiday Cheer to the Bears


Xilinx and Schnitzer Steel kicked off Christmas week by lowering guidance this morning.


Just over a week ago, we saw three key bellwether stocks -- Texas Instruments (TXN), Altera (ALTR), and DuPont (DD) -- lower guidance in reaction to slowing economic demand. (See: Texas Instruments, Altera, DuPont: Harbingers of Doom?)

Then, on December 12, Intel (INTC) came out with its own weak fourth-quarter outlook, which it attributed to the hard-drive shortage stemming from the Thailand floods. However, one can easily conclude that the economy had something to do with the company's weakness, given management prior claims that PC sales wouldn't be affected, and the fact that the warning came literally months after the shortage had materialized.

And late last week, steel companies Nucor (NUE) and Steel Dynamics (STLD) also lowered guidance due to weak pricing trends.

Today, the bears got even more ammunition as Schnitzer Steel (SCHN) and semiconductor play Xilinx (XLNX) came out with their own warnings.

Let's break it down.

Schnitzer said that it now sees fiscal first-quarter (ended in November) earnings of $0.18 to $0.25 per share, a range that is well below the consensus forecast of $0.55 per share.

The company is seeing "weaker than anticipated global market conditions for recycled metals," which it specifically attributed to the European debt crisis.

However, the "slowdown in buying patterns" cited in the press release may be coming from China, which at 26% of revenues is by far Schnitzer's biggest end market.

Soft landing in China? Hmm...

On to Xilinx (XLNX).

Xilinx now expects fiscal third-quarter (ends in December) revenue to be down 9% to 12% versus guidance that called for a smaller 3% to 8% decline. The new range implies revenue of $489 to $505 million, the midpoint of which is 4% below the consensus of $520 million.

In the release, Xilinx said that "weaker sales in the quarter are driven primarily by a decline in large customer business in the communications end market."

Xilinx's communications business accounts for about half of revenues, and makes chips for both wired and wireless applications. That unit, particularly on the wireless side, was also a main driver of weakness across all markets in the second quarter.

Therefore, I'd say that Xilinx's warning is of far less consequence than Schnitzer's. After all, semis, with the exception of mobile-device plays like Qualcomm (QCOM) and Broadcom (BRCM) (see: Broadcom Joins AT&T and Best Buy in Piling Up the Ammunition for Apple Bulls), have already been pretty lousy in terms of news flow as of late.

So to wrap it up -- think twice before making straight bets on the broad economy. The Dow (^DJI) is about 8% off its highs for the year, but it's not immediately clear just how much economic weakness is priced into the market at current levels, particularly since company-specific news flow seems to be deteriorating following a period in which many U.S. economic numbers came in better than expected.

Tread carefully out there!

Twitter: @MichaelComeau

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No positions in stocks mentioned.
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