NEW YORK -- Semiconductor stocks, which have regained some of their lost luster this week, got another boost from a cadre of Merrill Lynch analysts who argued that the industry's fundamentals are healthy and the stock's cheap.
Friday morning, the Merrill analysts led by Joe Osha argued in a conference call with clients and research notes that "the issues underpinning our mid-cycle correction scenario are dissipating." They raised industry growth forecasts and suggested investor's aggressively buy into the group.
The semiconductor sector, which soared in 1999 and the first three months of this year, sold off in the spring and foundered most of the summer amid concerns that the industry was nearing the end of its growth cycle. Semiconductor cycles usually last two to three years, the current one is into its fourth year.
The Philadelphia Semiconductor Index, which has see-sawed between its March peak of 1362 and May low of 822, recently was up 3.3% at 1148. The index has climbed 16% this week after some positive comments from an analyst at Salomon Smith Barney, who sparked some of the current concerns with bearish comments in July.
Semiconductor firms, infamous for oversupplying the market at the wrong times, won't be able to boost capacity enough this year to create any problems, Merrill said. That should set the stage for higher average selling prices in the later half of the year and healthy revenue growth.
The brokerage raised its estimates for global revenue growth to 40% ($209 billion), compared with earlier forecast of 32% growth ($196 billion).
On a conference call with clients, Merrill's analyst reiterated their enthusiasm for "oversold" wireless semiconductor makers, such as Texas Instruments Inc. (TXN), STMicroelectronics NV (STM), Analog Devices Inc. (ADI), National Semiconductor Corp. (NSM), Cypress Semiconductor Corp. (CY) and Atmel Corp. (ATML).
They also reiterated their positive ratings on major foundry operators, specifically Taiwan Semiconductor Manufacturing Corp. (TSM) and Chartered Semiconductor Manufacturing (CHRT).
"We think that it is time to begin buying stocks in the sector aggressively and we expect to exit 2000 with semiconductor stocks at new highs," the analysts wrote.
The analysts were less enthusiastic about the PC chip makers, specifically bellwether Intel Corp. (INTC). Osha insisted his tepid support wasn't a "negative call" but simply that's "not where the opportunity is right now."
snip<>
Jim |
