Before the opening this morning, SiRF Technology (SIRF) pre-announced a shortfall in revenue and earnings for the March quarter. There has been a sharp slowdown in consumer electronics spending in the U.S. and Europe since the holidays, and slower growth in Asia since the Chinese New Year. The slowdown has caused some inventory backup in the distribution channel, and SIRF is feeling the brunt of these forces right now.

The weakness in consumer electronics has been focused in the standalone or handheld personal navigation devices (like those made by Garman, TomTom and others), but has also spread to the automotive sector. SiRF said that they expect the lag in demand to continue into the June quarter as inventories are worked off, after which manufacturers will start ordering SIRF’s chips again for products to be sold in the second half of the year.

The company guided for March quarter revenues to come in at $60 million to $62 million, well below prior guidance for $71 million to $77 million and the consensus estimate for $74.2 million. To reduce costs SiRF is cutting staff by 7% over the next six months, closing their South San Francisco and Stockholm, Sweden development offices, and stopping development of mobile TV products. They should be able to book much of the related charges in the March quarter, and the total will hit $1.5 million to $2 million by the end of September. This will save them $2.5 million to $3 million per quarter after all the reductions are implemented.

The good news is that the handheld business represents SIRF’s past — their future is in products integrating GPS location with processing for integrated devices, such as cell-phones with built-in GPS. The bad news it that the company is making this transition at a difficult time for the U.S. consumer economy, and got nailed making the switch. Looking forward, though, SIRF still has the best GPS technology and is likely to be a leader in the integrated GPS/processor market, which will show explosive growth beginning from a low base in 2007. I also think the U.S. economy will be picking up in the second half of 2007 as the fire hose of liquidity from the Fed works its way through the banks into the hands of businesses, home buyers and consumers in general.

Taking a very short-term view, today’s stock hit (down $1.95) is not surprising. Looking further ahead, say six to 12 months, this clearly is a buying opportunity. The uncertainty over June-quarter earnings probably will keep the stock under $8 in the near future, so my $12 buy limit is too high. As they win more design contracts in the cell-phone area, I think the stock will do very well in the second half of 2008 into 2009, but I’m reducing the target price to $20 from $28 to be realistic about what can happen in the next 12 months. Buy SIRF under $8.

A Quick Comment on the Broad Market

The market is acting as I had outlined in last Thursday’s Radar Report, working its way higher by streaking up and then staging a drifty consolidation for a few days to gather energy for the next up-move. A dip back to test support at 1326 on the S&P 500 would be a superb buying opportunity, although it is unlikely to happen. My target is still 1440, and what happens there will tell us if the down market will resume and turn into a bear market, or if my more likely scenario of a rapid run up to 1880 will come to pass. You don’t want to miss a move like that.