...and some commentary from the Merrill upgrades:
Merrill turns upbeat on the chips Upgrades 11 semiconductor stocks, 'worse is over'
By Emily Church, CBS.MarketWatch.com
Last Update: 4:22 AM ET Aug. 1, 2001
LONDON (CBS.MW) - Brokerage Merrill Lynch on Wednesday upgraded 11 semiconductor stocks, telling clients overnight that "we believe the worst of the downturn is behind us."
Traders in London said that the chip group was trading up in thin volumes in the wake of the report and the better tone in the U.S. markets on Tuesday.
"We think that a combination of stabilizing earnings estimates, reduced capital spending and bottoming year-over-year change should cause semiconductor stocks to begin outperforming, albeit slowly, over the next six to twelve months," Merrill analysts said.
"Our focus is on wireless, foundry and the standard-product analog companies. We think valuation and positioning make this basket of stocks the most attractive," the brokerage's analysts said.
Among the U.S. stocks, Merrill raised Analog Devices (ADI: news, chart, profile), Maxim Integrated Products (MXIM: news, chart, profile), Linear Technology (LLTC: news, chart, profile) RF Micro Devices (RFMD: news, chart, profile) and Texas Instruments (TXN: news, chart, profile) to an intermediate term "buy."
Micron Technology (MU: news, chart, profile) and Semtech (SMTC: news, chart, profile) also had their intermediate ratings lifted, but not to the highest "buy" level.
In Europe, Merrill upped ST Microelectronics (STM: news, chart, profile) , saying the company is gaining market share. Shares of the Franco-Italian chipmaker STMicroelectronics (FR:012970: news, chart, profile) lead the FTSE Eurotop100, rising nearly 5 percent.
Among Asian chipmakers, ADRs, Merrill raised Taiwan Semi (TSMWF: news, chart, profile) and United Microelectronics (UMC: news, chart, profile) to intermediate term buys. Chartered Semi (CHRT: news, chart, profile) was raised, but also not as far as to an intermediate term buy.
Not a rebound in sales
Merrill said that it expects the companies' order books to meet lowered September quarter targets. Still, the analysts are not indicating that they see business conditions for the chipmakers are better now, noting that the industry "continues to struggle with a combination of overcapacity and demand."
The downturn has left many companies "below breakeven, and we do not expect to be back to normal run rates until the second half of 2002," Merrill said. The brokerage is expecting earnings in the first half of the year to remain depressed for the sector.
What the analysts are predicting is a rebound in 2002, or better put, say hopes for a rebound in 2002 are emerging in recent NAPM data. "We could easily see an upturn similar to the muted 1990-91 upturn, however, and we think it is reasonable to set expectations at that lower level."
The broker said it was not upgrading any fixed-line communications companies, expecting that "continued inventory problems and unreasonable valuations" means the group would lag any recovery for the sector.
It also remains more negative on the "PC-end of the market," telling clients that "we believe pricing will continue to be a significant challenge for the two major PC microprocessor makers."
marketwatch.com
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