What strikes some as peculiar about the current stampede into semiconductor shares is that worldwide sales of chips are expected to rise just 14 percent this year over last. Moreover, a multitude of computer manufacturers and resellers -- IBM and Inacom, to name one of each -- have recently warned that the outlook for their businesses in the fourth quarter and beyond looks worrisome.
Why are investors paying as much as 90 times earnings for companies whose futures depend on orders from computer makers who are singing the blues?
My problem with this article is it does not pay attention to other growing areas of chip usage: networking equipment, cell phones, game consoles, set-top boxes and other consumer electronics. As the world economy continues to recover from the various recessions and the US economy continues to sail along, sales of less expensive electronic devices will grow in volume.
Part of this will be due to growing demand, such as for cell phones. Part of it will be due to newer technology replacing older, such as the new gaming consoles from Sega (1.5 million Dreamcasts will be sold this year, about 400,000/month) and from Sony (shipping next year. I believe a Fab is being built just to produce the CPU's for the Playstation II.) DVD's are replacing VCR's. Digital television controllers are replacing analog. Other devices, such as electronic cameras are starting to reach mass consumer price points.
Short of a world-wide recession, the demand for chips is on an upward curve. This is what the price of AMAT reflects. |
