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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread
VTI 343.03+0.2%Jan 12 4:00 PM EST
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To: MrGreenJeans who wrote (1026)4/13/2001 3:26:46 PM
From: MrGreenJeans  Read Replies (2) of 10065
 
Lex: Semiconductors
Published: April 11 2001 20:01GMT | Last Updated: April 11 2001 20:06GMT



Here is a refreshingly candid approach to analysis: Salomon Smith Barney's US semiconductor analyst has upgraded his industry on the basis that things are so bad at the moment that they simply must get better soon. Since Salomon was one of the earliest to call the sector's top last summer, those comments electrified chip stocks on Wednesday. The Philadelphia Semiconductor Index has now rallied by a fifth over the past week, though it is still down nearly 60 per cent from its 2000 peak.

There are indeed signs of a bottom approaching, though most are still anecdotal. Judging by recent data from Taiwan, inventories in the personal computer market - which still absorbs half of all semiconductors - appear to be coming under control far more rapidly than expected. The expectation is that this will soon spread to wireless and wireline communication chips. Capital spending by the manufacturers, Intel excepted, is being reduced by 30-35 per cent in 2001 - the sharpest cutbacks for 20 years. That will rapidly reduce supply as the year progresses, raising hopes of an upturn in the second half.

Against that, a weakening world economy would delay recovery. And valuations remain quite high on an absolute basis: the sector is trading on about four times historic sales, compared with a 10-year low of two times. Investors should be cautious.
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