RobBlack.com MarketWrap
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Semiconductors . . . Auguste Richard at First Albany upgraded Micron to "strong buy" from "buy," on the belief that current estimates for fiscal fourth-quarter earnings and revenue are "too low," and that manufacturing costs have coming in lower than anticipated. Richard is also expecting a seasonal surge in prices for dynamic random access memory (DRAM). Target is $22.50.
Banc of America says the Taiwan Semi's CEO Morris Chang spoke at a conference about how "mega trends" are leading to slower growth for the semi industry; Chang attributed the slowing growth to the saturation of semi content and increasing economic hurdles facing Moore's law. Chang also thinks that China is over-investing in capital equipment and creating a bubble that will cause an industry downturn in 2005-06. Given current prices for semi stocks, firm says that extrapolating forward 1990's industry growth rates, earnings power, and profitability is a mistake.
MIPS Techs downgraded at B. Riley to Neutral from Buy based on valuation. The stock is trading at 28x their 2005 EPS estimate and the recent rally has pushed the shares well above their $4.75 target.
Standard Microsystems reported strong results for the second quarter, and offered a bullish outlook. The fabless semiconductor supplier reported second-quarter earnings from continuing operations of $1.5 million, or 8 cents per share, 3 cents ahead of the average estimate. Revenue came in at $48.3 million for the period, ahead of company projections and 26 percent higher than its total of $38.3 million in the same period a year earlier. The company said it saw strong demand across all of its product lines. Looking ahead, Standard Microsystems sees earnings from continuing operations of 75 to 80 cents per share in the third quarter, including the positive impact of a $20 million payment from Intel. For fiscal 2004, the company now expects earnings of 30 to 35 cents per share, excluding special payments from Intel, up from its previous outlook for a profit of 24 to 28 cents per share.
Simple Tech started with an Outperform at Thomas Weisel and $8 target. The firm believes that the company is well-positioned to benefit from the secular shift to flash memory, and the company's potential exposure to the DRAM market should provide for upside should prices continue to rise or if the PC replacement cycle gains traction, with limited risk should DRAM remain depressed; firm also sees potential upside for Xiran and telecom.
Analysts are adjusting semiconductor industry revenue and growth forecast for 2003 from 8.7% to 9.8% ($153.0 billion to $154.6 billion in dollar terms). Analysts have adjusted unit growth forecast from +6.3% to +5.8% Year over Year, and our ASP growth forecast from 2.3% to 4.3% for the year. The increase is due to higher ASP assumptions. Analysts are maintaining 2004 revenue growth forecast at 15% Year over Year. Analysts are raising revenue guidance due to strength in ASPs for the remainder of the year. Analysts believe that there are three major product groups in which we are anticipating pricing firmness - Flash Memory, MPU and Analog Discretes. The pricing increase is coming from healthy seasonal demand in notebooks, consumer electronics and handsets. Recent datapoints from end markets have been encouraging and point to a solid 4th quarter. On the PC side analysts are expecting for 4th quarter a 11% Year/Year growth based on strength in notebooks. On the communications side, we expect solid handset unit growth of 12.5% Year over Year for 4th quarter driven by customers’ new color-screen handset launches and seasonal demand for handsets. Analysts think the industry is likely to experience strong seasonal patterns in 3rd quarter and 4th quarter. The back to school season has been quite firm and we expect a healthy holiday season that should drive consumer demand. While corporate IT spending remains lackluster we are seeing signs of a PC up grade that is driven by notebooks.
Bear Stearns is recommending Intel because of 1) strength in notebooks and higher ASPs due to
favorable product mix 2) gross margins expansion through transition to 90nm and 300mm 3) a successful business model to leverage when IT spending accelerates. BS views Samsung's valuation as compelling, at 9.9x, and believe that its re-rating should continue in the mid-term.
Merrill Lynch technology sector strategist Steve Milunovich raised his rating on the semiconductor sector to "overweight" from "equal weight," and downgraded the Internet sector to "equal weight" from "overweight." Milunovich said while valuation was a concern for chip stocks, the sector scored well in the firm's TechStrat Sector Model on earnings revisions and price momentum. For Internets, he said price momentum and valuation were "problematic," offsetting good scores on earnings growth and revisions.
Thanks for posting that article Sam. Very insightful, I think.
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