Long on talk, short on evidence
Market Maker
August 01, 2001 05:53 PM ET
by Thomas Coyle
NEW YORK -- The Philadelphia Semiconductor Index posted a respectable 5 percent gain on Wednesday after Merrill Lynch said the worst is over for the silicon sector.
"Although the semiconductor industry continues to struggle with a combination of overcapacity and weak demand, we believe that the worst of the downturn is now behind us," said Joseph Osha, Merrill's semiconductor analyst.
Substance aside
"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 12 months," Osha continued.
Setting aside the strikingly odd view that low capital spending is a cause for celebration and ignoring the fact that semi inventories have stayed stubbornly high all year, Osha's cheery take on chips permeated the whole technology sector, pushing the Nasdaq Composite Index up 2 percent and the Upside 150, an all-tech trading gauge, up 4.5 percent for the session.
Trial balloon
Given the salutary effect of Merrill's prediction, it's safe to assume that investment banks will be dishing out more "worst is past" bulletins in coming weeks.
Why wouldn't they? What's to stop them from adopting an aggressive glass-half-full stance this month in hopes of boosting share prices, increasing their brokerage business, and, if their luck holds, getting back into the super-lucrative IPO game?
If their guesses turn out to be accurate -- and, with the help of protracted time lines, they might well be -- then the banks stand to see business improve even more this autumn. If their guesses turn out to be wrong, well, then, at least they'll have had a little taste in August.
Little resistance
Because the tech companies want to see their share prices move higher as well, they won't be getting in the way of their Wall Street brethren. They'll make a point of staying mum about business conditions in August -- especially if they have nothing good to say -- and delay giving new guidance for the September quarter until the post-Labor Day confession period rolls around.
Of course, investors might take fright in the meantime if the economic news gets worse, but there's only a slim chance of that. The stock market has acquired a remarkable genius for ignoring or misinterpreting negative economic data, and anyway, it'll be lulled to complacency by the promise of economic stimulation through falling interest rates and the federal tax cuts.
Happy Joe
Investors should also know that Merrill's Osha is one of Wall Street's staunchest optimists, an analyst who stuck by chipmaker Intel (INTC) with a near-term "accumulate" and a long-term "buy" even as its stock fell off a cliff last autumn.
It wasn't until December, soon after Intel had warned of a significant revenue shortfall in the fourth quarter of 2000, that he dropped the stock to long-term "accumulate" from long-term "buy." (Then of course the stock promptly found a new cliff to fling itself from, where, for all intents, it still languishes, down 59 percent from its all-time high.)
Details, details
But not everyone's buying Osha's gilded assessment of the chip group.
"There are still a lot of long-term concerns [that] are still present," Adam Adelman, a portfolio manager with Phillipe Investment Management, said in reference to the semi industry.
"Visibility is still very low, the blue-chip names are still facing some cash crunches, we haven't really seen a correction in the inventory levels yet, and capital expenditures are still contracting, so I'm not quite sure how you can pick a bottom until you see some of these things start to change," Adelman said.
upside.com
AdvocateDevil
(down, but not out!) |
