June 13, 2001
Inside Track
Insider Selling in Chip Sector
Is Starting to Look Bearish
By CASSELL BRYAN-LOW
Staff Reporter of THE WALL STREET JOURNAL
Investors hoping that the semiconductor industry's outlook is about to improve shouldn't look to the sector's insiders.
Sentiment among insiders at chip-making and equipment companies has turned noticeably more bearish in the past couple of months, said Paul Elliott, an analyst at Thomson Financial/First Call, which tracks insider activity. Among several firms where corporate executives and directors have recently been selling their own company shares are: Advanced Micro Devices Inc., Novellus Systems Inc., PMC-Sierra Inc. and KLA-Tencor Corp.
The insiders have been selling as the sector has rebounded, along with the rest of tech. The Philadelphia Stock Exchange semiconductor index is 41% above its April 4 low (but still 51% off last year's peak).
While insider selling across the broader market and tech has generally declined this year, sales by semiconductor insiders has trended up, said Mr. Elliott. "More so than elsewhere in tech, [semiconductor] insiders have been quick to lock in last month's surprise windfall," he said. Chip insiders tend to be periodic sellers, but Mr. Elliott said there are more insiders selling at one time than is typical.
The industry has recently been under the spotlight as investors have grappled for signs of a turnaround. The see-sawing sector rallied last week as investors looked past the current gloom, focusing instead on some cautiously optimistic comments about an improved business outlook for the end of the year, including one from industry bellwether Intel Corp. This week, however, investors have been rattled as more negative preannouncements hit Wall Street. And, as the sector struggles with weak demand and excess inventories, more bad news is expected to come.
"Many of the companies are mouthing optimism, but the hard evidence is scarce at best," said SG Cowen analyst Drew Peck.
In fact, industry insiders have even stepped up sales of their company stock. The value of restricted-share sales -- stock registered for sale by insiders and early investors -- tripled in April to $562 million from March, and rose to $614 million in May, according to Thomson Financial/First Call. The sector's insiders have had good timing in the past. Tech insider selling, in general, peaked early last year, just before the Nasdaq Composite Index plunged. Meanwhile, semiconductor sales declined through spring 2000 before ramping up midyear just before the sector hit an air pocket in July. (Sales also spiked in January of this year).
Sellers include those at chip maker Advanced Micro Devices. Just last week, the Sunnyvale, Calif., company repeated that it expects to achieve modest revenue growth in 2001, and said it sees more reason to believe that the personal-computer industry, which absorbs much of the company's output, is stabilizing. Throughout April and May, insiders sold $34.1 million in shares, or 1.1 million shares for $27.02 and $34.50 each. AMD spokesman John Greenagel said options are a key part of executives' compensation. He added, "General counsel encourages senior executives to establish a regular pattern of exercising and selling options precisely so nothing can be inferred when people sell."
At communications-chip maker PMC-Sierra, of Burnaby, British Columbia, insiders sold or filed their intention to sell 712,678 shares, for $25.02 to $44 a share, or $22.9 million total from March through May. A spokeswoman said company policy was not to comment on insider sales.
The selling also spread to semiconductor-equipment makers, including Novellus Systems, where insiders sold or planned to sell 1.1 million shares valued at $60.1 million since April, at prices of $50.78 to $58.09. On May 31, Chairman and CEO Richard Hill, who was among sellers, said the company still expects to meet forecasts, and that the San Jose, Calif., company wasn't seeing evidence of an upturn in the third quarter. Novellus spokeswoman Robin Yim said executives were selling for "diversification" purposes.
At equipment maker, KLA-Tencor, of San Jose, Calif., insiders sold or registered to sell 647,168 shares for $35 million, or about $49 to $60 apiece. Among sellers were Chairman Kenneth Levy and CEO Kenneth Schroeder, whose sales represented 2% to 3% of each of their holdings, said spokesman Kern Beare. For the other individuals, the disposals were either part of a "regular pattern of selling" or due to "personal circumstances," he said. |
