From TSC:
Silicon Valley
Jun 23, 1999
Killjoy Was Here
By Adam Lashinsky
Silicon Valley Columnist
Consider contrarian commentary when everything looks hunky-dory. This is the way to avoid potential traps when the pretty picture softens.
The tech world offers two such bright spots, for example, that upon closer examination might not be as attractive as "the market" thinks: semiconductor capital equipment and Internet service providers. Both sectors have been on a roll, both are in favor with tech investors, and both face some rather obvious risks.
Start with the equipment companies, which make the machines semiconductor manufacturers use to produce their wares. The best of the bunch, like Applied Materials (Nasdaq:AMAT - news) , KLA-Tencor (Nasdaq:KLAC - news) and Novellus Systems NVLS:, are trading at or near their 52-week highs after having been on their back late last year.
Mark FitzGerald, the Merrill Lynch analyst who pushed his view here recently that this semi-cap recovery won't be like past recoveries, continues to say that this group has gone too far, too fast. Now he's comparing prudent investors in equipment stocks to Acapulco cliff divers, who "spring from their perch only when the rocks in the water below are visible."
In short, FitzGerald just doesn't think the rocks are visible at the moment. But they're coming into view. He is concerned about Intel's (Nasdaq:INTC - news) continually weakening memory-chip pricing and worsening woes at PC maker Compaq (NYSE:CPQ - news) .These are "upstream" concerns. In other words, if there's trouble brewing among customers, how can the suppliers be safe?
"Those upstream issues hurt the psychology of the sector," warns FitzGerald. More importantly, they'll hurt multiples and, ultimately, stock prices.
|
