Fred, did you see this article on semis? I think AMAT is good value as well. My husband says, "whatever you do, don't sell your stocks, you have good ones."
Friday April 14, 2:30 pm Eastern Time
Individual Investor
Semiconductors: Chip Stocks Rake in the Earnings
Senior Analyst: Eric Singer (4/14/00)
The first quarter of 2000 has been a good time for chip stocks.
Look at the Philadelphia Semiconductor Index, which has literally been on a tear, surging
more than 50% year to date. That compares very favorably to the Nasdaq Composite,
which is down slightly for the year. In fact, most semiconductor companies have held up
rather well in the recent tech turbulence, posting only modest loses.
But why have semiconductors escaped? The rest of the market seems spooked by the
tumult and volatility in the tech sector.
First off, remember that semiconductor companies are enjoying exceptional fundamentals,
and indications are that when many begin releasing first quarter earnings over the next few
weeks, results will be phenomenal. In fact, just this week, Altera (NASDAQ: ALTR - news) a leading manufacturer of
programmable logic chips, posted earnings of $0.36 per share, ahead of consensus estimates and up from the $0.23 reported
last year. Altera benefited from strong sales of its chips into the communications market.
Additionally, Advanced Micro Devices (NYSE: AMD - news) blew away estimates when it released first quarter results on
April 12. AMD posted a profit of $1.15 per share for the quarter versus consensus estimates of a profit of $0.57 per share.
During the quarter, AMD was able to meet demand for its microprocessors through sound execution on the manufacturing
front, and benefited from the robust demand for flash memories.
Semiconductor companies are benefiting from robust end-user demand, tight capacity, low inventory levels and stable pricing.
Additionally, lead-times are increasing, meaning chip companies are enjoying better visibility as customers place orders further
and further in advance. These trends will continue.
In addition to PC growth, chip companies are benefiting from increasing demand for chips in the communications and
consumer device markets. Recent earnings release from communications giant Motorola (NYSE: MOT - news), and contract
manufacturers Jabil Circuit (NYSE: JBL - news) and Solectron (NYSE: SLR - news) confirm the strong underlying demand
for chips. All companies have indicated that component supplies are tight and inventory levels low.
The semiconductor industry is highly cyclical, and the industry is enjoying its first expansion in the past three years. After
peaking in 1995, excess capacity and weak demand drove the industry into a downturn.
But the major semiconductor companies didn't stand still during the slump. Instead, they scaled back expansion plans, and no
significant manufacturing capacity came on the market. With demand coming back strong and capacity tight, now the earnings
outlook for the entire sector continues to be constructive.
According to the Semiconductor Industry Association (SIA), worldwide sales of semiconductors totaled $14.56 billion in
February 2000, up by 33% form the $10.92 billion reported in February of 1999. The fastest growth rates were seen in the
Asia/Pacific and Japanese markets. In Asia, the industry grew 45.4%, and the Japanese market alone grew 42.5%. The
Americas market was up 24.7% from last year, and Europe's sales grew at 25.1%.
For the quarter, investors should expect the leading semiconductor companies to not only exceed consensus estimates but to
also guide estimates up over the next several quarters. Stable pricing, strong demand and manufacturing efficiencies are
leading to a faster expansion in operating margins than many analysts forecasted.
Texas Instruments (NYSE: TXN - news) is another chip company that should meet or exceed consensus estimates of $0.53
when it releases results on April 17. The leading manufacturer of DSPs (digital signal processors), Texas Instruments
continues to benefit from strong momentum into the wireless market.
Silicon Storage (NASDAQ: SSTI - news) should also post strong quarterly results, ahead of the $0.24 per share consensus.
The company, which is a leading player in the flash memory market, where demand is booming, is scheduled to release its first
quarter report on Tuesday, April 25.
The flash memory market is benefiting not only from demand in consumer applications such as digital cameras, but also from
robust demand into the communications sector. SST recently completed a secondary offering, raising over $200 million. This
capital should enable SST to access sufficient capacity to meet strong demand for its chips.
Vitesse Semiconductor (NASDAQ: VTSS - news) releases first quarter results on April 17 and should meet estimates of
$0.15 per share for the quarter on strong chip sales into key telecommunications accounts such as Nortel (NYSE: NT - news)
and Lucent (NYSE: LU - news).
Cypress Semiconductor (NYSE: CY - news), today's stock of the day, is a prime example of a company that achieved levels
of profitability in its first quarter that many had not forecasted until the third quarter. Cypress is a leading supplier of memory
and logic chips and is benefiting from the boom in demand for these chips into the communications markets.
Cypress will formally release first quarter results on April 18, but pre-announced stronger than expected numbers earlier this
past week. Cypress indicated that it would post profits of $0.41 per share for the quarter, well ahead of consensus forecasts of
$0.33.
Bottom Line:
Despite their surge, chip stocks have further upside ahead. Underlying fundamentals are incredibly strong with visibility
extending many months out. As chip companies begin releasing quarterly results, expect estimates for future quarters to be
upwardly revised. But investors need to be cognizant of the cyclical nature of the chip business. Any evidence of a shortening
of lead times and increasing inventory would make us less bullish on the sector.
For more in-house professional stock analysis and commentary, visit us at Individual Investor Online.
More Quotes
and News:
Advanced Micro Devices Inc (NYSE:AMD - news)
Altera Corp (NasdaqNM:ALTR - news)
Cypress Semiconductor Corp (NYSE:CY - news)
Jabil Circuit Inc (NYSE:JBL - news)
Lucent Technologies Inc (NYSE:LU - news)
Motorola Inc (NYSE:MOT - news)
Nortel Networks Corp (NYSE:NT - news)
Silicon Storage Technology Inc (NasdaqNM:SSTI - news)
Solectron Corp (Delware) (NYSE:SLR - news)
Texas Instruments Inc (NYSE:TXN - news)
Vitesse Semiconductor Corp (NasdaqNM:VTSS - news)
Related News Categories: computers, EDA, networking, semiconductors, telecom
Archive: Industry Analysis archive
|
