Is semiconductor decline overdone?
By Roy Blumberg, CBS MarketWatch
Last Update: 12:39 PM ET Aug 11, 2000
NEW YORK (CBS.MW) -- For the last few months, semiconductor
stocks have avoided the worst part of the decline in technology stocks.
While most areas within the general technology universe experienced declines of as much 15 percent for the year, many semiconductor-related issues have moved sideways.
From the beginning of the year to the July highs, the S&P semiconductor group rallied about 40 percent, and as of Aug. 4, 2000, was up 15 percent for the year.
In contrast, the S&P software index had declined by
15 percent and S&P telecommunication index was down more than 10 percent, on a year-to-date basis.
However, in the last few weeks, semiconductor issues joined in the overalltechnology decline.
Probably one of the reasons for the recent decline in semiconductor-related issues was the Nokia announcement that it does not expect to meet analyst estimates for the third quarter.
The company claims that the shortfall IS NOT DEMAND DRIVEN but rather SUPPLY DRIVEN in that it cannot get its hands on enough chips.
In spite of strong demand, investors interpreted the Nokia news as a sign that semiconductor stocks would not meet their earnings estimates over the next few quarters, as a number of leading semiconductor stocks saw their prices decline sharply without reports from the respective companies that they would be experiencing problems in the coming quarters.
Reasons to be bullish
There are many reasons to be bullish on the semiconductor area. Manufacturers are finding many additional ways to use chips. Chips are becoming more complex, allowing manufacturers to generate greater profit margins. For example, demand from PC box makers remains stronger than many had forecast.
Meanwhile, the demand from the telecommunications area seems to be accelerating, as wireless local area networks are becoming a reality.
Buying opportunity
A number of chip companies that we like are down sharply from their highs. Although we realize thatthere may be some additional selling pressure weighing down the stock prices over the near term,we believe this is a buying opportunity for investors.
Below are a few names I feel are attractive over the long term.
Texas Instruments is the dominant player in the digital signal processing (DSP) area with a market share of 50 percent. DSPs can be found in 70 percent of the wireless phones, VCRs, camcorders, cars and modems.
Semiconductors account for 85 percent of TXN's sales. The stock price has almost been cut in half in the last few months, dropping from $100 to the upper $50s
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Roy M. Blumberg is the Chief Equity Strategist at Sterne Agee &Leach. Sterne Agee & Leach is not offering to buy or sell anysecurities, nor recommending any action based on this article. |
