April 11, 2001 11:05 AM PDT
Chip analysts duel over prospects for sector
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Salomon Smith Barney argued in a report that semiconductor stocks could gain despite sluggish fundamentals. The conclusion counters a bearish report from Lehman Brothers on Monday.
Salomon Smith Barney's Jonathan Joseph upgraded the semiconductor sector to "outperform" and raised leading chip stocks to "buy." Joseph was among the first analysts to predict the semiconductor slump last summer.
By category he upgraded--to "buy" from "outperform"--computer component suppliers Intel, up $2.70 to $27.47, and Micron Technology, up $5.60 to $43.80; wireless component makers Texas Instruments, up $5.18 to $34.78, STMicroelectronics, up $1.34 to $37.13, and Infineon, up $2.66 to $41.70; and communications chipmakers Applied Micro, up $5.27 to $21.65, Altera, up $3.83 to $28.34, and Xilinx, up $7.30 to $42.33.
Just two days ago, Lehman Brothers analyst Dan Niles issued a gloomy report predicting that 2001 could be the industry's "worst year ever."
The big debate among chip analysts hinges on when chip stocks will rebound in anticipation of a better outlook. Joseph and Niles used the same evidence to arrive at different conclusions.
Niles said semiconductor revenue would drop 18 percent to 20 percent in 2001, worse than the previous record of a 17 percent drop in 1985.
Niles, who said the sector was a mess, and conditions were the worst he's ever seen, cut estimates on Intel, Texas Instruments and Cypress Semiconductor. "We believe it took nine to 12 months to create this supply-demand imbalance and that it will take a minimum of another six to nine months to hit bottom," he said.
Joseph conceded that "it's really ugly out there," but he upgraded stocks "based upon anecdotal order and shipment data that is so bad it cannot continue for long."
"Never in our experience have we heard stories of prominent semiconductor makers reporting no net bookings in the quarter, shipments for good, if not great, component suppliers falling 50 percent quarter on quarter, and distributors reporting a 65 percent sequential decline in demand," Joseph wrote in a research note.
He also disagreed with Niles on when chip companies will hit bottom. Sector data "suggests a fundamental bottom is only months away," Joseph wrote.
Goldman Sachs issued a bullish report on the communications chip sector, but was more cautious on the prospects for a turnaround. Companies such as Anadigics, up 63 cents to $12.40; Applied Micro; Broadcom, up $4.80 to $34.51; and Conexant, up 60 cents to $8.03, are expected to deliver results in line with reduced estimates for their first quarters, analyst Nathaniel Cohn wrote.
The key will be the outlook into the second quarter, he added, "and we expect the group to remain cautious as visibility is limited and many of the companies continue to see de-bookings."
