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Wednesday March 29 5:38 PM ET
Chip Companies to Shine This Quarter Amid Boom Times
By Therese Poletti
SAN FRANCISCO (Reuters) - Forget about investing in money-losing dot-com companies, the
$149 billion worldwide semiconductor industry is on a roll.
The semiconductor business, known for its boom-to-bust cycles, is in full recovery from its most
recent three-year downturn, which also happened to be the industry's longest.
Factories are humming again at almost full capacity, supplies are getting tight and chip stocks have
been skyrocketing faster than some newly public dot-coms.
But unlike profit-averse Internet companies, chip companies are making money and as earnings this
quarter will show, many U.S. chip companies could report better-than-expected results.
``They will all do well, they will all have upside surprises, their stocks will all rise, it's a
semiconductor up-cycle,' said Dan Niles, an analyst at Robertson Stephens. 'Most of my
companies have real earnings and the multiples -- relative to other spaces -- are reasonable.'
Indeed, since the beginning of the year, the Philadelphia Stock Exchange Semiconductor Index
(^SOXX - news) has soared about 82 percent, in part fueled by huge surges in networking and
communications chip companies.
Many chip companies have been trading near or at their 52-week highs, before losing some recent
gains this week.
Analysts and fund managers said they expect chip stocks to continue to climb, despite declines in
some tech stocks this week, as strong earnings will further buoy a bullish outlook.
``I think generally speaking business is pretty good and I suspect they will all report a good quarter,'
said Steve Shapiro, president of Intrepid Capital Management in New York. 'A lot of them have
had pretty fabulous moves, so we don't own as much as we used to. We still own them selectively.'
Of course the risk for an investor getting into chip stocks now, as some stocks are near or at year
highs, is that they will begin to sell off on the news of strong earnings, or at the first signs of too much
supply and excess capacity.
But analysts are mostly bullish, saying demand remains strong for the near-term, possibly through the
year.
``I think earnings results and the outlooks will be strong enough to drive these stocks higher as we go
into the second quarter,' said Mark Edelstone, a Morgan Stanley Dean Witter analyst. ``I am pretty
optimistic about how these stocks will trade going into summer. Business is great.'
One of the first companies to report next month will be Advanced Micro Devices Inc. (NYSE:AMD
- news), Intel Corp.'s biggest rival in PC microprocessors, and now the comeback kid of the chip
business.
Sunnyvale, Calif.-based AMD, which has struggled in the past with manufacturing problems and
price wars with Intel, appears to be running on all cylinders.
Analysts are looking for a strong first quarter, fueled by big demand for its Athlon processor family
that is competing with Intel's Pentium III chips and flash memory sales.
Intel, the world's largest semiconductor maker, had even been rumored to pre-announce that its first
quarter results would be better-than-forecast.
The Santa Clara, Calif.-based giant is likely to beat consensus estimates. Revenues, which Intel had
predicted will be slightly down from the fourth quarter, could even be flat to down around 2 percent
to 4 percent, analysts said.
``I think they will exceed expectations,' said Hans Mosesmann, a Prudential Volpe Technology
Group analyst. ``I think they will have a decent outlook and I think ASPs (average selling prices) will
be flat to up. People are going to want to own the stock.'
Last year, Intel saw its average selling prices decline amid cut-throat price wars in the low-cost PC
sector, but they rose again slightly in the fourth quarter.
Companies developing chips for high-speed communications, networking and consumer electronics
areas are all expected to see continued strong sales, amid growing demand for cellular phones,
pagers, video gaming consoles, and networking products.
The following is a list of many of the top U.S. semiconductor companies and their consensus
earnings estimates, as compiled by First Call/Thomson Financial.
Company Consensus Report Date
Altera (NasdaqNM:ALTR - news) profit $0.34 April 12
AMD profit $0.44 April 12
Atmel (NasdaqNM:ATML - news) profit $0.17 April 20
Conexant (NasdaqNM:CNXT - news) Q2 profit $0.19 April 19
Cypress Semi (NYSE:CY - news) profit $0.33 April 18
Intel Corp. profit $0.69 April 18
LSI Logic (NYSE:LSI - news) profit $0.25 April 25
PMC Sierra (NasdaqNM:PMCS - news) profit $0.16 April 13
Texas Instruments(NYSE:TXN - news) profit $0.53 April 18
Vitesse (NasdaqNM:VTSS - news) Q2 profit $0.15 April 17
Xilinx (NasdaqNM:XLNX - news) Q4 profit $0.21 April 20 |
