Chip Equipment : The chip equipment stocks were among the strongest performers during the
Nasdaq's October to March rally. Perhaps that is why many of them have been beaten up pretty
badly during the Nasdaq meltdown, falling well off their respective highs amid fears all of the good
news surrounding the industry's cyclical upturn had already been priced into the stocks.
Unfortunately, it appears the latest book-to-bill data from the Semiconductor Equipment and
Materials International (SEMI) trade group will feed fears the industry has peaked as the
book-to-bill ratio fell to 1.42 in April from 1.45 in March. That is, chip equipment makers
received $142 in orders for every $100 of products shipped in April versus $145 in orders for
every $100 of products shipped in March. Bookings, however, rose 10% sequentially to $2.7
billion. Nevertheless, book-to-bill data is watched closely to gauge the industry's growth
prospects and a perception that things may be slowing from their torrid pace could leave many of
the chip equipment stocks in narrow trading ranges for the time being. SG Cowen has suggested
as much today and the fact that Chase Hambrecht & Quist expressed its disappointment over the
latest data while ABN AMRO said it still sees upside in the chip equipment stocks, arguing that
the peak of the cycle is still a good year away even though the stock market discounts a slowing of
order momentum a good 6 months ahead, speaks to the differing viewpoints that will contribute to
range-bound trading activity. It should also be noted that CS First Boston, according to CNBC, is
suggesting investors use any weakness in these stocks as a buying opportunity. Obviously, one
viewpoint will prevail, and frankly, we're favoring the bullish views espoused by ABN AMRO and
CS First Boston. After all, the slight sequential decline in the book-to-bill ratio comes after five
months of new records, and most likely, reflects seasonality more than it reflects the start of a true
deterioration in industry conditions. Now, we could be wrong, but we continue to put a lot of
stock in the fair number of chip makers that have said they are attempting to increase their
manufacturing capacity in order to meet demand for their products. Further, we put even more
stock in Applied Materials' CEO, James Morgan, who has recently said a recent surge in new
orders for chip making equipment doesn't necessarily mark a peak in demand, and that he expects
two more waves of capital spending on technological improvements in 2001 and 2002. Once
again, though, this is a market that remains fixated on the negatives so those positive items get
discounted in a hurry. That discounting, we believe, has created some attractive buying
opportunities in light of the industry's still strong growth prospects and relatively attractive
valuations.-- Patrick J. O'Hare, Briefing.com
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KLAC buying back shares today. Sector not dead yet.
Jack |
