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Monday, September 18, 2000
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Chip Outlook Conundrum:
Is And Isn't Best Of Times
By James DeTar
Investor's Business Daily
Financial analysts are on the same wavelength most of the time, but they’re having an unusually sharp battle of opinions about the chip field.
Two prominent analysts say they see chip sales slowing a lot as soon as next year. Others see the chip boom continuing through 2003 at least.
But it might not be a black-and-white issue. Both camps might be right, says Molly Marr, spokeswoman for the Semiconductor Industry Association trade group.
Chip sales soared in 1999. Because the market was so slow in 1998, Marr says, the brisk pace of 1999 and this year will be hard to maintain. Future sales might “look like a slowdown, but they’ll still be strong.”
On the glass-is-half-empty side is Salomon Smith Barney Inc. analyst Jonathan Joseph. He says the chip industry has peaked and the growth rate will fall sharply in early 2001.
In a recent report, Joseph cited what he calls evidence of a slow reversal of industry fundamentals.
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Image: Chips Are In
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“We see weakness in a couple of end markets that we didn’t expect,” Joseph said in an interview. He says those markets include cell phones and PCs. Neither market, he says, is growing as fast as expected.
“It will be very difficult to make good money in these (chip) stocks over the next six months, at least,” Joseph said.
Many Downgrades
Salomon recently downgraded its rating for the chip sector from “outperform” to “neutral.” It also lowered ratings on several chipmakers, including Advanced Micro Devices Inc., Texas Instruments Inc. and National Semiconductor Corp.
U.S. Bancorp Piper Jaffray Inc. analyst Ashok Kumar also is sending warning signals. He, too, says slowing PC sales will hurt chip demand. He couldn’t be reached for comment, but on Sept. 5 he downgraded Intel Corp., the world’s largest chipmaker, from “strong buy” to “buy.”
Joseph and Kumar are the most prominent naysayers, but they aren’t alone. Banc of America Securities LLC on Wednesday lowered its ratings on Intel and AMD from “strong buy” to “market perform.”
But other analysts and industry officials call the downgrades misleading.
In the last quarter of 1999, chip sales surged 26.2% to $42.38 billion, ending one of its worst downturns in years.
In the last quarter of 1998, chip sales were $33.5 billion, the SIA says. Comparing current sales growth with the unusually high levels of a year ago is unrealistic, SIA officials say.
The SIA says chip sales will grow 31% this year to $195 billion. That’s the highest rate since 1995, when chip sales jumped 42% to $144.4 billion from $101.8 billion in 1994. In unit sales, researcher International Data Corp. sees 18.9% sales growth this year, the third-highest rate since 1994.
The SIA projects 60% total growth in chip sales for the next three years. That means $312 billion worth of chips would be sold in 2003.
Talk of a PC slowdown aside, Marr says the SIA is sticking by its forecast. And it’s got plenty of support among analysts.
Nothing But Blue Skies
Grant Johnson, an analyst with market researcher Cahners In-Stat Group, recently wrote a report titled, “Nothing but Blue Skies for Semiconductor Industry.” He forecasts strong growth in chip sales at least through 2002.
“My report is bullish because of the fundamentals that are in place,” Johnson said in an interview. “There’s incredible demand across the board. The chip industry no longer relies just on PCs.”
He refers to the growth of wireless hand-held devices from Palm Inc., Handspring Inc. and others. IDC says the number of people accessing the Web via hand-helds just in the U.S. will rise to 61.7 million in 2003 from 7.4 million in 1999.
Johnson also challenges the forecast of slowing PC sales.
“He (Kumar) says there’s a shortage in demand, that end-user demand for PCs is slowing down,” Johnson said. “That’s not true. Intel can’t get enough chips out the door.”
Some figures seem to back Johnson’s view. This month, Framingham, Mass.-based IDC said worldwide PC sales will reach a record 33.4 million units this quarter. That’s an above-average 18.5% jump over the fourth quarter a year ago.
Steve Baker, an analyst with PC Data Inc. of Reston, Va., says some PC makers might have weaker sales now than a year ago. “That doesn’t mean demand isn’t good this year,” he said. “It’s just that demand was out of its mind last year.”
There are no issues that would slow PC sales, and there are good reasons people will want to upgrade their computers or buy new ones, he says. One reason is that players of rewritable compact discs are just starting to sell in volume.
He notes that rewritable CDs are easy to use, much like cassette tapes. People will be able to record music on their CDs and then play it on a PC, home stereo or car stereo.
Another plus for PC makers, and a trend that portends sales growth, is that prices are rising. In July, the average price of a PC bumped up 2.3% from year-ago levels to $839, PC Data says.
In April, May and June, retail PC prices fell 4%-6% before turning up in July. “In those months last year, we were seeing price declines of 20% a month,” Baker said.
This bodes well for PC chipmakers like Intel and Advanced Micro Devices as they’ll be able to sell more of their higher-priced chips, Baker says.
Still, he says, PC sales could fall.
“The question is: Do people feel like they need to get a new computer when they’re already on the Internet and their experience is acceptable?” Baker said.
Chipmakers await the answer. |
